Adani Enterprises Ltd., Ahmedabad V. The Addl. CIT,Range-1, Ahmedabad

ITA 3321/AHD/2014

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6399 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHASH BAINS MSA KHAN; LALIT JAIN REVEN
• Assessee Lawyers: S N SOPARKAR BANDISH SOPARKAR
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Maximum Marginal Rate; International transaction; Earning of tax free income; Retrospective amendment; Cost of acquisition; Non-deduction of tax; Speculation loss; Bad and doubtful debts; Capital expenditure; Speculative transactions; Rule 8D; Set aside
• Section: 143(3); 92B; 14A; 37(1); 195; 80IA; 144C; 145; 27; 37; 56; 28; 92

Judgement Text

ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 1 OF 43 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR VP AND MAHAVIR PRASAD JM] ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 ADANI ENTERPRISE LIMITED .....APPELLANT ADANI HOUSE, NAVRANGPURA AHMEDABAD 380 009 [PAN: AABCA2804L] VS ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 1, AHMEDABAD ..........RESPONDENT ITA NOS: 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 1, AHMEDABAD .....APPELLANT VS ADANI ENTERPRISE LIMITED ..........RESPON DENT ADANI HOUSE, NAVRANGPURA AHMEDABAD 380 009 [PAN: AABCA2804L] APPEARANCES BY S N SOPARKAR, BANDISH SOPARKAR AND PARIN SHAH FOR THE ASSESSEE SUBHASH BAINS, MSA KHAN AND LALIT JAIN FOR THE REVENUE DATE OF CONCLUDING THE HEARING : NOVEMBER 13, 2018 DATE OF PRONOUNCEMENT : FEBRUARY 12, 2019 O R D E R PER PRAMOD KUMAR, VP: 1. THESE THREE SETS OF CROSS APPEALS PERTAIN TO THE SAME ASSESSEE, INVOLVE SOME COMMON AND INTERCONNECTED ISSUES, AND WERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE, THEREFORE, ALL THE SIX APPEALS ARE BEING DISPOSED OF BY WAY OF THI S CONSOLIDATED ORDER. 2. WE BEGIN WITH THE CROSS APPEALS FOR THE ASSESSME NT YEAR 2008-09 WHICH ARE DIRECTED AGAINST THE ORDER DATED 14 TH JUNE 2012 PASSED BY THE CIT(A) IN THE MATTER OF AS SESSMENT UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008- 9. WE WILL TAKE UP THE APPEAL OF THE ASSESSEE FIRST . ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 2 OF 43 3. GROUND NO. 1 IN THE APPEAL OF THE ASSESSEE IS A S FOLLOWS: 1.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING DISALLOWANCE (OF RS. 2.76 CRORE DIRECTED TO BE REDUCED TO RS. 2.18 CRORE AFTER VERIFICATION) ON ACCOUNT OF ADMINI STRATIVE EXPENDITURE MADE BY THE LEARNED ASSESSING OFFICER U/S. 14A READ WITH RULE 8 D(2)(III) @ ONE-HALF PER CENT, OF THE AVERAGE VALUE OF INVESTMENTS, INCOME FROM WHICH DID NOT FORM PART OF THE APPELLANT'S TOTAL INCOME, IN THE FOLLOWING TERMS (EMPHASIS SUPPLIED): '3.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER DISALLOWED EX PENSES RELATING TO EARNING OF EXEMPT INCOME UNDER SECTION 14A READ WITH RULE 8D S INCE APPELLANT DID NOT DISALLOW ANY SUCH EXPENSE IN THE RETURN OF INCOME F ILED. SINCE APPELLANT DID NOT DISALLOW ANY EXPENSE, SUB SECTION 3 OF SECTION 14A IS APPLICABLE AND AS PER THAT THE COMPUTATION OF DISALLOWANCE HAS TO BE MADE AS PER R ULE 8D. FROM ASSESSMENT YEAR 2008-09, RULE 8D IS MANDATORY AS HELD BY BOMBAY HIG H COURT IN THE CASE OF GODREJ AND BOYCE AND THEREFORE ASSESSING OFFICER IS JUSTIF IED IN APPLYING RULE 8D WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A. IN VIEW O F THIS THE DECISIONS RELIED UPON BY THE APPELLANT, WHICH ARE PRIOR TO ASSESSMEN T YEAR 2008-09, ARE NOT RELEVANT AND HENCE NOT DISCUSSED.' 1.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED , INTER ALIA,: (A) THAT THE RELEVANCE OF THE AUTHORITIES ON WH ICH THE APPELLANT HAD RELIED BEING IN CONNECTION WITH THE ASSESSING OFFICER HAVING TO BE SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDIT URE INCURRED IN RELATION TO INCOME WHICH DID NOT FORM PART OF HIS TOTAL INCOME [AS ENV ISAGED BY SUB-SECTION (2) OF SECTION 14A], IT WAS NOT OPEN TO HIM TO CONCLUDE TH AT THOSE AUTHORITIES HAD CEASED TO BE RELEVANT WITH THE ADVENT OF RULE 8D WITH EFFE CT FROM A.Y. 2008-09 AND ON THAT BASIS, TO UPHOLD THE IMPUGNED DISALLOWANCE MERELY B ECAUSE THE APPELLANT HAD ITSELF NOT MADE ANY DISALLOWANCE EVEN AS IT HAD EARNED INC OME WHICH DID NOT FORM PART OF ITS TOTAL INCOME; (B) THAT FURTHER, THE AUTHORITIES ON WHICH THE APPELLANT HAD RELIED BEING RELEVANT FROM THE POINT OF VIEW OF DISCHARGE OF ONUS BY THE ASSESSING OFFICER BEFORE HE COULD MADE THE DISALLOWANCE ENVISAGED BY SECTION 14 A, IT WAS ONLY AXIOMATIC THAT THEIR RELEVANCE CANNOT BE IMPAIRED WITH THE ADVENT OF RULE 8D; THAT AS THE BOMBAY HIGH COURT HAD ITSELF HELD IN GODREJ & BOYCE MFG. C O. LTD. V. DCIT(328 ITR 81) ON WHICH THE LEARNED CIT(A) HAD SOUGHT TO RELY, THE VERY QUESTION OF TAKING RECOURSE TO RULE 8D CAN ARISE ONLY AFTER THE ASSESS ING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEE'S CLAIM IN RES PECT OF EXPENDITURE IN RELATION TO INCOME WHICH DID NOT FORM PART OF HIS INCOME; (C) THAT SUB-SECTION (2) OF SECTION 14A ENJOINE D UPON THE ASSESSING OFFICER TO CONSIDER THE ASSSSSEE'S CLAIM IN RESPECT OF EXPENDI TURE IN RELATION TO INCOME NOT FORMING PART OF HIS TOTAL INCOME, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND OTHER RELEVANT FACTORS (AS ELABORATELY EXPLAINED BY THE BOMBAY HIGH COURT IN ITS AFORESAID DECISION) AND THAT IT IS ONLY IF, AFTER T HUS CONSIDERING THE ASSESSEE'S CLAIM, HE WAS NOT SATISFIED WITH ITS CORRECTNESS, THAT THE MANDATE FOR MAKING A DISALLOWANCE OF THE EXPENDITURE IN ACCORDANCE WITH THE METHOD PRESCRIBED UNDER RULE 8D COMES INTO PLAY; ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 3 OF 43 (D) THAT AS THE FOLLOWING PORTION OF THE ASSESS MENT ORDER IMPUGNED BEFORE HIM SHOWED, THE IMPUGNED DISALLOWANCE HAD BEEN MADE BY THE LEARNED ASSESSING OFFICER NOT BECAUSE HE WAS NOT SATISFIED WITH THE A PPELLANT'S CLAIM IN THE MANNER ENVISAGED BY SUBSECTION (2) OF SECTION 14A BUT AFTE R ASSUMING THAT THERE WAS ALWAYS SOME KIND OF INDIRECT EXPENDITURE IN RELATIO N TO INCOME NOT FORMING PART OF TOTAL INCOME (EMPHASIS SUPPLIED): '4.12 REGARDING THE ADMINISTRATIVE EXPENDITURE 0.5% OF AVERAGE INVESTMENTS IS WORKED OUT AS PER RULE 8D(III). ASSE SSEE ARGUED THAT ONCE THE EXPENDITURE OF THE TREASURY DEPARTMENT IS DISALLOWE D, ADMINISTRATIVE EXPENDITURE AS PER RULE 8D CANNOT BE DISALLOWED. IN THIS REGARD IT IS TO BE NOTED THAT THERE 3 ITEMS UNDER WHICH THE DISALLOWAN CE UNDER RUL3 8D HAS TO BE WORKED OUT AND THE 50% OF TREASURY EXPENDITUR E IS DISALLOWED UNDER CLAUSE (I). APART FROM THE DIRECT EXPENDITURE, THER E IS ALWAYS SOME KIND OF INDIRECT EXPENDITURE IN THE FORM OF UNQUANTIFIABLE SERVICES OF FINANCE DEPARTMENT PERSONNEL AND THE MANAGERIAL PERSONNEL A ND DIRECTORS OF THE COMPANY IN DECISION MAKING AND TIME AND ENERGY SPEN T THERE ON. THEREFORE THE FORMULA NEEDS TO BE APPLIED UNDER ALL CLAUSES T O WORK OUT THE EXPENDITURE DISALLOWABLE U/S. 14AR. W. RULE 8D --- (E) THAT THUS, THE VERY ASSUMPTION OF JURISDICTION BY THE LEARNED ASSESSING OFFICER UNDER RULE 8D WAS WITHOUT LEGAL BASIS. (F) THAT IN THE PECULIAR FACTS AND CIRCUMSTANCE S OF THE APPELLANT'S CASE, IT WAS NOT OPEN TO THE LEARNED ASSESSING OFFICER NOT TO BE SAT ISFIED WITH THE CORRECTNESS OF ITS CLAIM THAT IT HAD NOT INCURRED ANY EXPENDITURE WHIC H COULD BE DISALLOWED U/S. 14A; (G) THAT IN THE ABOVE CONNECTION, IT WAS SIGNIF ICANT TO CONSIDER, INTER ALIA,: (1) THAT THE APPELLANT'S INVESTMENTS PRODUCING INC OME NOT FORMING PART OF ITS TOTAL INCOME WERE IN THE PARTNERSHIP FIRM OF M/ S. ADANI EXPORTS AND STRATEGIC INVESTMENTS IN THE SHARE CAPITAL OF GROUP COMPANIES PROMOTED BY THE APPELLANT AND/OR THE MEMBERS OF THE APPELLANT'S GROUP; (2) THAT BY THEIR VERY NATURE, EXPENDITURE IN RELAT ION TO THE ABOVE INVESTMENTS HAD TO BE REGARDED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPELLANT'S BUSINESS (AS EN VISAGED BY ITS MEMORANDUM OF ASSOCIATION); (3) THAT ESPECIALLY CONSIDERING THE PECULIAR NATURE OF THE APPELLANT'S INVESTMENTS IN QUESTION, IT WAS ALSO RELEVANT TO CO NSIDER THAT THE TOTAL INCOME OF THE PARTNERSHIP FIRM OF M/S. ADANI EXPORT S WAS LIABLE TO ASSESSMENT AT THE MAXIMUM MARGINAL RATE OF TAX AND SO ALSO, THE TOTAL INCOME OF THE COMPANIES IN WHICH THE APPELLANT HAD MADE INVESTMENTS, APART FROM DIVIDEND TAX PAYABLE BY THEM AS AND WHEN THEY DISTRIBUTED DIVIDENDS; 4. AS FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED, IT IS AGAINST THE DISALLOWANCE OF 0.5% OF THE AVERAGE INVESTMENTS AS EXPENSES RELATIN G TO EXEMPT INCOME FROM SUCH INVESTMENTS. THERE IS NO DISPUTE THAT THE YEAR BEFO RE US IS THE YEAR IN WHICH RULE 8 D HAS LEGAL FORCE, THAT THE ASSESSEE DID NOT OFFER ANY EXPENSES ON HIS OWN, AND THAT, WHEN RULE 8D IS TAKEN INTO ACCOUNT, THE EXPENSES RELATABLE TO EXEMPT INCO ME WILL HAVE TO BE TAKEN ON THAT ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 4 OF 43 BASIS. LEARNED COUNSEL, HOWEVER, SUBMITS THAT IN T HE LIGHT OF SPECIAL BENCH DECISION IN THE CASE OF ACIT VS VIREET INVESTMENTS PRIVATE LIMITED [(2017) 165 ITD SB 27 (DELHI)], THE COMPUTATION OF 0.5% OF INVESTMENTS MUST REMAIN CONF INED TO ONLY SUCH INVESTMENTS WHICH HAVE YIELDED TAX EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIES ON THE JU DGMENT OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS VS CIT [(2018) 402 ITR 6 40 (SC)] IN SUPPORT OF THE PROPOSITION THAT A REASONABLE DISALLOWANCE IN RELATION TO EXEMP T INCOME MUST BE MADE. THAT DOES NOT HOWEVER DILUTE THE PRINCIPLE LAID DOWN BY THE SPECI AL BENCH IN THE CASE OF VIREET INVESTMENTS (SUPRA). TO THIS EXTENT, WE UPHOLD THE PLEA OF THE ASSESSEE AND MODIFY THE ORDERS OF THE AUTHORITIES BELOW BY DIRECTING THE ASSESSING OFFICE R TO COMPUTE THE 0.5% OF THE INVESTMENTS YIELDING TAX EXEMPT INCOME DURING THE RELEVANT PREV IOUS YEAR. 5. GROUND NO. 1 IS THUS PARTLY ALLOWED IN T HE TERMS INDICATED ABOVE. 6. IN GROUND NO. 2, THE ASSESSEE HAS RAISED THE FOL LOWING GRIEVANCE: 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE TEAMED CIT(A) HAS GROSSLY ERRED [EVEN AS HE HAD DIRECTED T HE LEARNED ASSESSING OFFICER TO ALLOW THE APPELLANT'S CLAIM FOR DEDUCTION OF BAD DE BTS AFTER VERIFYING THAT THE DEBTS IN QUESTION HAD BEEN TAKEN INTO ACCOUNT IN THE COMP UTATION OF THE APPELLANT'S INCOME IN EARLIER YEAR/S AS REQUIRED BY SECTION 36( 2)] IN REJECTING THE APPELLANT'S ALTERNATIVE CLAIM MADE ON THE GROUND THAT IN ANY CA SE, THE DEBIT BALANCES AGGREGATING TO RS. 1,64,13,841 WRITTEN OFF TO THE A PPELLANT'S PROFIT AND LOSS ACCOUNT HAD ARISEN IN THE COURSE OF THE APPELLANT'S BUSINESS AND WHOSE LOSS, THEREFORE, REPRESENTED BUSINESS LOSS DEDUCTIBLE U/S . 28 OF THE INCOME-TAX ACT, 1961. 7. IN A CONNECTED GROUND OF APPEAL, I.E. GROUND NO. 5 IN REVENUES APPEAL WHICH WE MUST TAKE UP TOGETHER, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: 5. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DIRECTING TO VERIFY WHETHER THE AMOUNT OF RS.1,64,13,841/- CLAIMED AS BAD DEBT WAS SHOWN AS INCOME EARLIER, DESPITE THE FACT THAT THE ASSESSEE HAD ITSELF ADMIT TED DURING ASSESSMENT PROCEEDINGS THAT THE SAID AMOUNT WAS NOT OFFERED FOR TAX IN EAR LIER YEARS. 8. AS FAR AS THESE GRIEVANCES ARE CONCERNED, WE HAV E NOTED THAT THE CIT(A) HAS ALREADY REMITTED THE CLAIM OF BAD DEBTS OF RS 1,64,13,841 T O THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION THAT IF BAD DEBTS WRITTEN OFF HAVE BEEN CONSIDERED AS INCOME IN EARLIER YEARS OR THE SAME IS TAKEN INTO ACCOUNT OF SALES TAKEN INTO CRED IT SIDE OF P&L ACCOUNT, THE BAD DEBT TO THAT EXTENT IS ALLOWED. AS THE CLAIM OF BAD DEBT ITSELF HAS BEEN ALLOWED IN PRINCIPLE AND THE MATTER HAS BEEN REMITTED TO THE FILE OF THE ASSESSI NG OFFICER ONLY FOR A FACTUAL VERIFICATION, THE CLAIM FOR BUSINESS LOSS IS INFRUCTUOUS AT THIS STAG E AND DOES NOT NEED TO BE ADJUDICATED UPON. SIMILARLY, WE ARE UNABLE TO SEE ANY MERITS IN THE G RIEVANCE OF THE ASSESSING OFFICER FOR CIT(A)S DIRECTING A FACTUAL VERIFICATION WHICH IS SO FUNDAMENTAL TO THE CLAIM BEING DENIED AS THE CLAIM FOR DEDUCTION WAS DECLINED PRIMARILY ON T HE GROUND THAT THE ASSESSEE HAD NOT OFFERED RELATED INCOME TO TAX. GRIEVANCES OF BOTH T HE PARTIES, THEREFORE, LACK LEGALLY SUSTAINABLE MERITS. WE CONFIRM THE ACTION OF THE CI T(A) ON THIS ISSUE AS WELL AND DECLINE TO INTERFERE IN THE MATTER. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 5 OF 43 9. GROUND NO. 2 IN THE APPEAL OF THE ASSESSEE AND G ROUND NO. 5 IN THE APPEAL OF THE ASSESSING OFFICER ARE, THEREFORE, DISMISSED. 10. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCES: 3.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES O F THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWA NCE OF LOSS OF RS.73,00,000 RESULTING FROM 'MARKING TO MARKET' FOREIGN CURRENCY FORWARD CONTRACTS OUTSTANDING AS AT THE END OF THE YEAR DEBITED TO THE APPELLANT' S PROFIT AND LOSS ACCOUNT, IN THE FOLLOWING TERMS (EMPHASIS SUPPLIED): '7.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER T REATED MARKED TO MARKET LOSSES IN FOREIGN EXCHANGE DERIVATIVES AS NOTIONAL SINCE NO SALE HAPPENED OR TRANSACTION IS NOT CONCLUDED. ASSESSING OFFICER DER IVED THE STRENGTH FROM CBDT INSTRUCTION NO.3/2010 IN WHICH IT AUTHORITIES HAVE BEEN ASKED TO TREAT SUCH MARKED TO MARKET LOSSES AS NOTIONAL AND TO MAKE ADDITION OF SUCH LOSSES. I HAVE GONE THROUGH THE SAID INSTRUCTION AN D IT IS CLEAR THAT SUCH NOTIONAL LOSS IS NOT ALLOWABLE. THE RELEVANT EXTRAC T OF THE INSTRUCTION IS QUOTED BELOW: . SINCE THE ASSESSING OFFICER HAS MADE THE DISALLOWAN CE ON THE BASIS OF AFORESAID BINDING INSTRUCTION, I DO NOT SEE ANY INF IRMITY IN THE ORDER. THE JUDICIAL DECISIONS RELIED UPON BY TH E APPELLANT ARE PRIOR TO THE ISSUE OF THIS INSTRUCTION. SINCE THIS INSTRU CTION CLARIFIES THE TREATMENT TO BE GIVEN TO SUCH NOTIONAL LOSSES UNIFORMLY, THE SAME IS WITHIN THE POWERS CONFERRED UPON CBDT UNDER IT ACT. NO CONTINGENT LIA BILITIES ARE ALLOWABLE UNDER INCOME TAX ACT, THOUGH THE SAME MAY BE ALLOWA BLE IN ACCOUNTING STANDARDS. MARKED TO MARKET LOSSES ARE NOTHING BUT CONTINGENT LIABILITIES WHICH ARE TO BE DISALLOWED. . 3.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATE D, INTER ALIA,: (A) THAT THE APPELLANT'S ACCOUNTING FOR THE IMPUGN ED LOSS WAS NOT ONLY IN CONFORMITY WITH ITS CONSISTENT ACCOUNTING PRACTICE IN THIS BEHALF BUT FURTHER AND PERTINENTLY, IT WAS IN CONFORMITY WITH THE RELEVANT ACCOUNTING STANDARD AS-11 OF THE INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA WHICH MANDATED THE APPELLANT TO ACCOUNT FO R SUCH LOSS; THAT LAW WAS VERY WELL SETTLED THAT SANCTITY OF THE PRES CRIPTIONS OF THE ACCOUNTING PROFESSION CAN BE SIDELINED ONLY IF THER E WAS AN EXPRESS LEGAL PROVISION WITH WHICH SUCH PRESCRIPTIONS CONFL ICTED (WHICH WAS NOT THE CASE HERE); (B) THAT THE APPELLANT'S CLAIM FOR THE IMPUGNED LOS S WAS SUPPORTED BY SEVERAL AUTHORITIES ON WHICH IT HAD RELIED UPON BEFORE HIM AND WHICH INCLUDED DECISIONS OF THE SUPREME COURT ITSELF; ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 6 OF 43 (C) THAT THE SOLE REASON FOR THE LEARNED ASSESSING OFFICER TO MAKE THE IMPUGNED DISALLOWANCE WAS THE DIRECTION OF THE CBDT CONTAINED IN ITS INSTRUCTION NO. 3/2010 DATED 23.3.2010 WHICH SURPRI SINGLY HAD BRANDED THE 'MARKED TO MARKET' LOSSES AS NOTIONAL AND CONTI NGENT IN NATURE, IN TOTAL DISREGARD OF THE FACT THAT THE PRESCRIPTIONS OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA REQUIRED RECOGNITION OF SUCH LOSSES; (D) THAT LOSS ARISING FROM 'MARKING TO MARKET OF O UTSTANDING FOREIGN EXCHANGE FORWARD CONTRACTS AS AT THE END OF THE YEA R WAS, FAR FROM BEING A CONTINGENT OR NOTIONAL LOSS AS SUGGESTED IN THE AFORESAID CBDT INSTRUCTION, MORE LIKE THE LOSS RESULTING FROM VALU ATION OF CLOSING STOCKS BY THE GENERALLY ACCEPTED METHOD OF VALUING STOCKS AT 'LOWER OF COST OR MARKET' AS AT THE END OF THE YEAR AND ESPECIALLY WH EN ITS ACCOUNTING HAD BEEN MANDATED BY AN ACCOUNTING STANDARD OF THE INST ITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND ALSO SUPPORTED BY DECISION S OF THE SUPREME COURT, THERE COULD BE NO QUESTION FOR ITS DEDUCTION BEING DISALLOWED; (E) THAT THE AFORESAID INSTRUCTION OF THE CBDT WAS CLEARLY CONTRARY TO THE DECISIONS OF THE SUPREME COURT [IN PARTICULAR, CIT V. WOODWARD GOVERNOR (INDIA) P. LTD. (312 ITR 254) AND ONGC V. CIT (322 ITR 180)] AND BEING SUCH, IT WAS INVALID AND, THEREFORE , NOT BINDING EITHER UPON THE ASSESSING OFFICER OR UPON HIM; (F) THAT, IN ANY CASE, THE AFORESAID CBDT INSTRUC TION COULD NOT BIND HIM IN TERMS OF THE EXPRESS PROHIBITION CONTAINED IN CLAUS E (B) OF THE PROVISO TO SUB-SECTION (1) OF SECTION 119 OF THE INCOME-TAX AC T, 1961; THAT, THEREFORE, HE HAD GROSSLY ERRED NOT ONLY IN UPHOLDI NG THE IMPUGNED DISALLOWANCE ON THE GROUND THAT HE FOUND NO FAULT W ITH THE ASSESSING OFFICER MAKING THE IMPUGNED DISALLOWANCE IN CONFORM ITY WITH THE AFORESAID INSTRUCTION BUT FURTHER, IN NOT DECIDING THE APPELLANT'S GROUND USING HIS OWN DISCRETION IN THE MATTER OF CONSIDERI NG THE APPELLANT'S ELABORATE SUBMISSIONS INCLUDING THE DECISIONS OF TH E SUPREME COURT AND OTHER AUTHORITIES RELIED UPON BY THE APPELLANT; (G) THAT HIS ATTEMPT AT DISMISSING THE AUTHORITIES INCLUDING THE DECISIONS OF THE SUPREME COURT ON WHICH THE APPELLANT HAD RELIED BEFORE HIM, BY SUGGESTING THAT THEY HAD BEEN RENDERED BEFORE THE I SSUE OF THE AFORESAID CBDT INSTRUCTION, WAS INDEED CURIOUS AND BELIED THE APPROACH WHICH A SEMI-JUDICIAL AUTHORITY SUCH AS THE CIT(A) IS ENJOI NED UPON TO ADOPT UNDER THE INCOME-TAX ACT, 1961; (H) THAT IT WAS ALSO NOT OPEN TO HIM TO DISMISS TH E APPELLANT'S CONTENTION THAT THE CBDT INSTRUCTION ON THE BASIS OF WHICH THE LEARNED ASSESSING OFFICER HAD MADE THE IMPUGNED DISALLOWANCE HAD BEEN ISSUED LONG AFTER THE PREVIOUS YEAR CORRESPONDING TO THE PRESEN T ASSESSMENT YEAR HAD ENDED AND, THEREFORE, THE LEARNED ASSESSING OFF ICER'S APPLYING THE ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 7 OF 43 SAME TO THE APPELLANT'S PRESENT CASE AMOUNTED TO GI VING IT A RETROSPECTIVE EFFECT WHICH WAS IMPERMISSIBLE IN LAW . 11. SO FAR THIS GRIEVANCE OF THE ASSESSEE IS CONCER NED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS 1.96 CRORES IN RESPECT OF DERIVATES CONTRACTS. WHEN THE MATTER WAS PROBED FURTHER, IT WAS FOUND TH AT THE SAID LOSS CONSISTS OF RS 0.73 CRORES IN RESPECT OF FOREX DERIVATES CONTRACTS WHI CH IS IN THE NATURE OF MARK TO MARKET LOSS IN RESPECT OF FORWARD CONTRACTS ENTERED INTO BY THE ASSESSEE COMPANY IN RESPECT OF TRADE OBLIGATIONS. THE ASSESSING OFFICER, HOWEVER, DECL INED THIS DEDUCTION BY OBSERVING THAT THESE LOSSES ARE NOTIONAL LOSSES AND CANNOT BE CLA IMED AGAINST INCOME OF THE YEAR. MARK TO MARKET IS A CONCEPT UNDER WHICH FINANCIAL INSTRUME NTS ARE VALUED AT MARKET RATE SO AS TO REPORT THEIR ACTUAL VALUE ON THE REPORTING DATE. HO WEVER, THESE LOSSES ARE NOTIONAL LOSSES ON ACCOUNT OF POSITION AS ON 31.3.2008. THE ASSESSING OFFICER THEN, RELYING UPON THE CBDT INSTRUCTION NO. 3/2010 DATED 23 RD MARCH 2010, DISALLOWED THE CLAIM. AGGRIEVED, ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) SIMPLY RELIED UPON THE CBDT INSTRUCTIONS AND FOLLOW ED THE SAME. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 13. AS LEARNED REPRESENTATIVES FAIRLY AGREE, THIS I SSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH DECISION IN THE CAS E OF VEER GEMS VS ACIT [(2017) 77 TAXMANN.COM 127 (AHMEDABAD - TRIB.)] WHEREIN THE CO ORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 16. THE REVENUE'S LAST SUBSTANTIVE GROUND PLEADS TH AT THE CIT(A) ERRED IN DELETING DISALLOWANCE OF PROVISION OF FORWARD CONTRACT PAYAB LE OF RS.34,35,000/- BY HOLDING THAT THE ENTRY PASSED IN THE BOOKS OF ACCOUNT IN RESPECT OF DIFFERENCE IN EXCHANGE RATE CANNOT BE SAID TO BE IN THE NATURE OF NOTIONAL/UNASCERTAIN ED LIABILITY. THE ASSESSEE HAD MADE THE IMPUGNED PROVISION AS PER MTM CERTIFICATE FOR THE I MPUGNED ASSESSMENT YEAR FOLLOWED BY ITS REVERSAL IN THE SUCCEEDING ASSESSMENT YEAR 2 009-10 ON ACCOUNT OF FOREIGN EXCHANGE RATE DIFFERENCE AS ON 31.03.2008. THE ASSESSING OFF ICER DISALLOWED THE SAME BY CALLING IT AS UNASCERTAINED LIABILITY NOT ALLOWABLE. 17. THE CIT(A) ACCEPTS ASSESSEE'S ARGUMENTS AS FOLL OWS :- '7.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, VIDE ORDER SHEET ENTRY DATED 01.11.2011, THE ASSESSEE WAS REQUIRED TO GIVE THE F ULL DETAILS OF THE PROVISION ENTRY OF RS. 34,35,000/- ON ACCOUNT OF FORWARD CONT RACT PAYABLE. THE ASSESSEE VIDE ITS SUBMISSION DATED 16.12.2011 SUBMITTED THAT THE ACCOUNT SHOWN AS PAYABLE AS PER MTM CERTIFICATE FOR A.Y. 2008-09 WAS REVERSED IN THE A.Y. 2009- 10. ASSESSING OFFICER OBSERVED THAT THIS LIABILITY WHICH IS WORKED OUT AS ON 31.03.2008 HAS NOT CRYSTALLISED AS ON THAT DATE. AC CORDING TO A.O THE SAME REPRESENTS UNASCERTAINED LIABILITY & IS THEREFORE, NOT ALLOWABLE AS EXPENDITURE UNDER THE I. T ACT. ON THE BASIS OF THESE OBSERVATI ONS, PROVISION OF FORWARD CONTRACT PAYABLE OF RS. 34,35,000/- HAS BEEN DISALL OWED AND ADDED TO THE TOTAL INCOME OF ASSESSEE. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 8 OF 43 SUBMISSIONS OF THE APPELLANT 7.2. DURING THE COURSE OF APPELLATE PROCEEDINGS, TH E LEARNED AR MADE VARIOUS SUBMISSIONS; THE RELEVANT PORTION OF THE SAME IS RE PRODUCED HEREUNDER: 'IN THE COURSE OF APPELLATE PROCEEDINGS, IT IS SUBM ITTED THAT ASSESSING OFFICER HAS ERRED IN MAKING ADDITION OF RS. 34,35,000/- TO THE TOTAL INCOME OF ASSESSEE ON ACCOUNT OF PROVISION FOR FORWARD CONTRACT PAYABLE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE SUBMITTED THAT ACC OUNT OF FORWARD CONTRACT WAS REFLECTED IN THE BOOKS OF ACCOUNTS AS PER MTM C ERTIFICATE OF ABN AMRO BANK. ASSESSEE IS REQUIRED TO RECORD FORWARD CONTRA CT TRANSACTIONS AS PER ACCOUNTING STANDARD 11 OF ICAI & THE SAME PROVIDES THAT FORWARD CONTRACTS REMAINING OUTSTANDING AT THE END OF FINANCIAL YEAR SHOULD BE RECORDED AT CLOSING RATE PREVAILING AT THE END OF THE YEAR I.E. 31ST MA RCH. THIS TREATMENT IS IN LINE WITH THE ACCRUAL METHOD OF ACCOUNTING AS PROFITS/ L OSSES PERTAINING TO THE YEAR UNDER CONSIDERATION ARE REQUIRED TO BE REPORTED IN P & L A/C & THEREFORE, FLUCTUATION IN EXCHANGE RATE IS REQUIRED TO BE TAKE N INTO CONSIDERATION. HOWEVER, CONTENTION OF ASSESSING OFFICER TO TREAT THE SAME A S UNASCERTAINED LIABILITY IS COMPLETELY INCORRECT IN AS MUCH AS ENTRY IS PASSED ON THE BASIS OF ACTUAL CLOSING RATE PREVAILING AT THE END OF FINANCIAL YEAR AS PER MTM CERTIFICATE ISSUED BY ABN AMRO BANK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EE FILED COPY OF MTM CERTIFICATE AND COPY OF FORWARD CONTRACT PAYABLE. A S PER MTM CERTIFICATE, IT IS EVIDENT THAT EXCHANGE RATE OF USD HAS GONE UP AS ON 31ST MARCH AS COMPARED TO THE EXCHANGE RATE PREVAILING AT THE TIME OF BOOKING OF FORWARD CONTRACTS & THIS HAS RESULTED INTO EXCHANGE LOSS TO ASSESSEE FOR WHI CH PROVISION ENTRY IS PASSED IN THE BOOKS OF ACCOUNTS. IT IS FURTHER RELEVANT TO POINT OUT THAT IN THE SUB SEQUENT YEAR, WHEN THE CONTRACT HAS BEEN CANCELLED, ASSESSEE HAS RECOGNISED THE GAI N/LOSS BASED ON THE DIFFERENCE BETWEEN EXCHANGE RATE PREVAILING AT THE .END OF THE CURRENT FINANCIAL YEAR AS PER MTM CERTIFICATE & THE EXCHANGE RATE PREVAILING AS O N THE DATE OF CANCELLATION OF FORWARD CONTRACT WHICH IS IN LINE WITH THE ACCRUAL SYSTEM OF ACCOUNTING. AS SUCH ASSESSEE HAS PASSED ENTRY FOR LOSS ONLY IN RESPECT OF THE BALANCE AMOUNT & THE EXCHANGE LOSS IS DIVIDED INTO TWO YEARS AS PER ACCR UAL SYSTEM OF ACCOUNTING & THE ACCOUNTING STANDARD OF ICAI. NOW, IF ANY DISALLOWANCE IS MADE FOR THE YEAR UNDER CONSIDERATION IN THAT CASE, DEDUCTION SHOULD BE ALLOWED OF THIS AMOUNT IN SUBSE QUENT YEAR, AS ASSESSEE HAS CLAIMED ONLY BALANCE LOSS I.E. LOSS ARISING ON ACCO UNT OF DIFFERENCE BETWEEN EXCHANGE RATE AS ON 31/03/2008 & EXCHANGE RATE PREV AILING AS ON THE DATE OF CANCELLATION. THE ADDITION MADE BY ASSESSING OFFICE R HAS THUS, RESULTED INTO DOUBLE TAXATION AS AFTER SET OFF OF PROVISION ENTRY OF RS. 34,35,000/- MADE AT THE END OF CURRENT YEAR, ONLY THE BALANCE AMOUNT IS CLA IMED AS DEDUCTION IN SUBSEQUENT YEAR.' DECISION: 7.3. I HAVE CONSIDERED THE REASONS GIVEN BY ASSESSI NG OFFICER & ALSO THE SUBMISSIONS OF APPELLANT. THE ASSESSEE HAS MADE PRO VISION IN RESPECT OF FORWARD CONTRACT ENTERED INTO BY IT ON THE BASIS OF DIFFERE NCE IN EXCHANGE RATE PREVAILING AS ON THE DATE ON WHICH FORWARD CONTRACT HAS BEEN B OOKED AND THE EXCHANGE RATE ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 9 OF 43 PREVAILING AT THE END OF THE YEAR I.E. ON 31.03.200 8 AS PER MTM CERTIFICATE ISSUED BY ABN AMRO BANK. IT IS NOT IN DISPUTE THAT ASSESSE E IS FOLLOWING MERCANTILE METHOD OF ACCOUNTING AND AS PER THIS METHOD, ALL TH E EXPENSES/GAINS WHICH PERTAINS/ARISES DURING THE YEAR UNDER CONSIDERATION IS REQUIRED TO BE CONSIDERED IN THE PROFIT AND LOSS ACCOUNT FOR THAT YEAR ITSELF . THE PROVISION ENTRY HAS BEEN MADE BECAUSE THE EXCHANGE AS ON 31ST DAY OF MARCH H AS GONE UP AS COMPARED TO THE EXCHANGE RATE OF FORWARD CONTRACT PREVAILING AS ON THE DATE OF TRANSACTION. IN MY VIEW, THE ENTRY PASSED IN THE BOOKS OF ACCOUNT I N RESPECT OF THE DIFFERENCE AMOUNT CANNOT BE SAID TO BE IN THE NATURE OF NOTION AL/UNASCERTAINED LIABILITY AS SAID ENTRY IS PASSED ON THE BASIS OF ACTUAL EXCHANG E RATE PREVAILING AT THE END OF THE YEAR. THE FLUCTUATION IN EXCHANGE RATE HAS MATE RIAL BEARING ON THE P & L A/C & AS FORWARD CONTRACT HAS BEEN ENTERED INTO DURING THE YEAR UNDER CONSIDERATION, LOSSES/GAIN RELATING TO THE FLUCTUAT ION IN EXCHANGE RATE PERTAINING TO SAID FORWARD CONTRACT SHOULD ALSO BE CONSIDERED IN P & L A/C FOR THE YEAR UNDER CONSIDERATION. IT IS ALSO FURTHER SEEN THAT I N THE IMMEDIATELY SUCCEEDING YEAR WHEN FORWARD CONTRACT HAS BEEN CANCELLED, ASSE SSEE HAS RECOGNISED EXPENSE/LOSS ONLY IN RESPECT OF THE BALANCE AMOUNT I.E. IN RESPECT OF THE AMOUNT IN EXCESS OF THE PROVISION MADE DURING THE YEAR UND ER CONSIDERATION. NOW, IF ANY DISALLOWANCE IS MADE FOR THE YEAR UNDER CONSIDERATI ON, IN THAT CASE CORRESPONDING DEDUCTION IS REQUIRED TO BE ALLOWED I N THE SUBSEQUENT YEAR. HOWEVER, THERE IS NO JUSTIFIABLE REASON IN DOING SU CH AN EXERCISE AS TREATMENT GIVEN BY ASSESSEE IN THE BOOKS OF ACCOUNTS IS IN LI NE WITH THE ACCRUAL SYSTEM OF ACCOUNTING AND THE SAME DOES NOT RESULT INTO PROVIS ION FOR ANY UNASCERTAINED LIABILITY. CONSEQUENTLY, THE ADDITION MADE ON THIS DISALLOWANCE IS HEREBY DELETED.' 18. WE HAVE HEARD RIVAL SUBMISSIONS. RELEVANT FINDI NGS PERUSED. THE ASSESSEE HAS ADMITTEDLY MADE THE IMPUGNED PROVISION IN VIEW OF D IFFERENCE IN EXCHANGE RATE AS ON THE DATE OF BOOKING OF ITS FORWARD CONTRACT VIS-A-VIS E XCHANGE RATE PREVAILING AS ON 31.03.2008. IT HAS FORTIFIED ITS CLAIM IN VIEW OF A BN AMRO BANK'S MTM CERTIFICATE FORMING BASIS OF THE IMPUGNED PROVISION. THE REVENU E FAILS TO DISPUTE THAT THE ASSESSEE HAS FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING INSTEA D OF CASH SYSTEM AND IT IS ACCORDINGLY SUPPOSED TO ACCOUNT FOR ALL EXPENSES/GA INS IN THE P&L ACCOUNT ON THE SAID BASIS. IT THUS EMERGES THAT ASSESSEE HAD SUFFICIENT REASON TO TREAT THE IMPUGNED LIABILITY ARISING ON ACCOUNT OF FOREIGN EXCHANGE RATE DIFFERE NCE SO AS TO MAKE THE IMPUGNED PROVISION AS PER THE RELEVANT ACCOUNTING STANDARD I SSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. WE THUS FIND NO REASON TO RES TORE THE IMPUGNED DISALLOWANCE 14. ON A SIMILAR NOTE, BUT WITH A LITTLE MORE DETAI LED ANALYSIS, ANOTHER COORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF SUZLON ENERGY LTD VS A CIT [(2017) 81 TAXMANN.190 (AHD)], HAS OBSERVED AS FOLLOWS: 6. IT IS ONE OF THE MOST FUNDAMENTAL PRINCIPLES OF ACCOUNTING THAT WHILE ALL ANTICIPATED LOSSES ARE TAKEN INTO ACCOUNT IN COMPUTING THE PROF ITS AND LOSSES OF BUSINESS, EVEN THOUGH SUCH LOSSES MAY NOT HAVE CRYSTALLIZED, AS LO NG AS THESE LOSSES CAN BE REASONABLY QUANTIFIED. THIS APPROACH CAN BE CONTRASTED WITH TH E ANTICIPATED PROFITS BEING IGNORED, IN THE COMPUTATION OF PROFITS AND LOSSES OF AN ENTE RPRISE, UNLESS THE PROFITS ARE ACTUALLY REALIZED. TO THAT EXTENT, THERE IS A DICHOTOMY IN A CCOUNTING APPROACH BUT THEN THIS IS WHAT IS THE SOUND ACCOUNTING POLICY AND IT HAS THE SANCTION OF LAW. AS A MATTER OF FACT, IT IS THIS PRINCIPLE, AS RECOGNIZED BY HON'BLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM V. CIT [1953] 24 ITR 481, WHICH EXPLAINS THE VALUATION OF CLOSING STOCK ON ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 10 OF 43 MARKET PRICE OR COST PRICE WHICHEVER IS LESS. THERE IS THUS, IN PRINCIPLE, NO DIFFICULTY IS SEEKING A DEDUCTION IN RESPECT OF A REASONABLY ANTI CIPATED LOSS, EVEN THOUGH IT MAY NOT HAVE ACTUALLY FRUCTIFIED, IN COMPUTATION OF PROFITS AND GAINS OF BUSINESS. TO THIS EXTENT, THE ASSESSING OFFICER WAS CLEARLY IN ERROR IN TREAT ING THE LOSS ON FOREIGN EXCHANGE AS A NOTIONAL LOSS NOT DEDUCTIBLE IN COMPUTATION OF BUSI NESS INCOME. ON THE FACTS OF THE PRESENT CASE, HOWEVER, NOT ONLY ANTICIPATED LOSSES HAVE BEEN CLAIMED AS DEDUCTION BUT ANTICIPATED PROFITS HAVE BEEN OFFERED TO TAX. THE G AINS HAVE BEEN OFFERED TO TAX ON THE BASIS OF ASSESSEE'S FOLLOWING MANDATORY ACCOUNTING STANDARDS, AND ON THE BASIS OF SAME ACCOUNTING STANDARDS LOSSES ON FORWARD CONTRACTS HA VE BEEN RECOGNIZED TOO. THE CLAIM OF DEDUCTION OF RS. 22.15 CRORES REPRESENTS THE DIF FERENCE BETWEEN TOTAL FOREIGN EXCHANGE LOSS OF RS. 50.11 CRORES AS AT THE YEAR END DATE AN D FOREIGN EXCHANGE GAINS OF RS. 27.95 CRORE AS AT THE YEAR END DATE. WHAT HAS BEEN DONE B Y THE ASSESSING OFFICER TO TAKE INTO ACCOUNT GAINS ON SUCH CONTRACTS BUT IGNORE THE CASE S IN WHICH LOSSES ARE COMPUTED IN RESPECT OF THE FORWARD CONTRACTS. IT IS AGAINST THI S APPROACH THAT THE ASSESSEE HAD RAISED THE GRIEVANCE. 7. IN THE CASE OF WOODWARD GOVERNOR INDIA (P.) LTD. (SUPRA), THE ISSUE REGARDING DEDUCTIBILITY OF FOREIGN EXCHANGE LOSS CAME UP FOR CONSIDERATION BEFORE HON'BLE SUPREME COURT AND THERE WAS SIMILAR INCONSISTENCY I N TREATMENT TO LOSSES AND GAINS ON THE FORWARD CONTRACTS. THEIR LORDSHIPS, DEALING WIT H THIS ISSUE AND HOLDING THAT SUCH A LOSS WILL BE DEDUCTIBLE IN COMPUTATION OF BUSINESS PROFITS, OBSERVED AS FOLLOWS: '. . . . . . . . IT IS CLEAR THAT PROFITS AND GAINS OF THE PREVIOUS YEAR ARE REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE RELEVANT ACCOUNTING STANDARD. IT IS IMPORTANT TO BEAR IN MIND THAT THE BASIS ON WHICH STOCK-IN-TR ADE IS VALUED IS PART OF THE METHOD OF ACCOUNTING. IT IS WELL ESTABLISHED, THAT, ON GENERAL PRINCIPLES OF COMMERCIAL ACCOUNTING, IN THE P&L ACCOUNT, THE VALU ES OF THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR SHOULD BE ENTERED AT COST OR MARKET VALUE, WHICHEVER IS LOWER- THE MARKET VALUE BEING ASCERTAINED AS ON THE LAST DATE OF THE ACCOUNTING YEAR AND NOT AS ON ANY INTERMEDIATE DATE BETWEEN THE COMMENCEMENT AND THE CLOSING OF THE YEAR, FAILING W HICH IT WOULD NOT BE POSSIBLE TO ASCERTAIN THE TRUE AND CORRECT STATE OF AFFAIRS. NO GAIN OR PROFIT CAN ARISE UNTIL A BALANCE IS STRUCK BETWEEN THE COST OF ACQUISITION AND THE PROCEEDS OF SALE. THE WORD 'PROFIT' IMPLIES A COMPARISON BETWEEN THE STAT E OF BUSINESS AT TWO SPECIFIC DATES, USUALLY SEPARATED BY AN INTERVAL OF TWELVE M ONTHS. STOCK-IN-TRADE IS AN ASSET. IT IS A TRADING ASSET. THEREFORE, THE CONCEP T OF PROFIT AND GAINS MADE BY BUSINESS DURING THE YEAR CAN ONLY MATERIALIZE WHEN A COMPARISON OF THE ASSETS OF THE BUSINESS AT TWO DIFFERENT DATES IS TAKEN INTO A CCOUNT. SEC. 145(1) ENACTS THAT FOR THE PURPOSE OF S. 28 AND S. 56 ALONE, INCOME, P ROFITS AND GAINS MUST BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTIN G REGULARLY EMPLOYED BY THE ASSESSEE. IN THIS CASE, WE ARE CONCERNED WITH S . 28. THEREFORE, S. 145(1) IS ATTRACTED TO THE FACTS OF THE PRESENT CASE. UNDER T HE MERCANTILE SYSTEM OF ACCOUNTING, WHAT IS DUE IS BROUGHT INTO CREDIT BEFO RE IT IS ACTUALLY RECEIVED; IT BRINGS INTO DEBIT AN EXPENDITURE FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED. (SEE JUDGMENT OF T HIS COURT IN THE CASE OF UNITED COMMERCIAL BANK V. CIT (1999) 156 CTR (SC) 380 : (1 999) 240 ITR 355 (SC). THEREFORE, THE ACCOUNTING METHOD FOLLOWED BY AN ASS ESSEE CONTINUOUSLY FOR A GIVEN PERIOD OF TIME NEEDS TO BE PRESUMED TO BE COR RECT TILL THE AO COMES TO THE CONCLUSION FOR REASONS TO BE GIVEN THAT THE SYSTEM DOES NOT REFLECT TRUE AND CORRECT PROFITS. AS STATED, THERE IS NO FINDING GIV EN BY THE AO ON THE CORRECTNESS ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 11 OF 43 OF THE ACCOUNTING STANDARD FOLLOWED BY THE ASSESSEE (S) IN THIS BATCH OF CIVIL APPEALS. 17. HAVING COME TO THE CONCLUSION THAT VALUATION IS A PART OF THE ACCOUNTING SYSTEM AND HAVING COME TO THE CONCLUSION THAT BUSIN ESS LOSSES ARE DEDUCTIBLE UNDER S. 37(1) ON THE BASIS OF ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING AND HAVING COME TO THE CONCLUSION THAT THE CENTRAL GOVE RNMENT HAS MADE ACCOUNTING STANDARD-11 MANDATORY, WE ARE NOW REQUIR ED TO EXAMINE THE SAID ACCOUNTING STANDARD ('AS'). 18. AS-11 DEALS WITH GIVING OF ACCOUNTING TREATMENT FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES. AS-11 DEALS WITH EFFECTS OF EXCHANGE DIFFERENCES. UNDER PARA 2, REPORTING CURRENCY IS DEFINED TO MEAN THE C URRENCY USED IN PRESENTING THE FINANCIAL STATEMENTS. SIMILARLY, THE WORDS 'MON ETARY ITEMS' ARE DEFINED TO MEAN MONEY HELD AND ASSETS AND LIABILITIES TO BE RE CEIVED OR PAID IN FIXED AMOUNTS, E.G., CASH, RECEIVABLES AND PAYABLES. THE WORD 'PAID' IS DEFINED UNDER S. 43(2). THIS HAS BEEN DISCUSSED EARLIER. SIMILARL Y, IT IS IMPORTANT TO NOTE THAT FOREIGN CURRENCY NOTES, BALANCE IN BANK ACCOUNTS DE NOMINATED IN A FOREIGN CURRENCY, AND RECEIVABLES/PAYABLES AND LOANS DENOMI NATED IN A FOREIGN CURRENCY AS WELL AS SUNDRY CREDITORS ARE ALL MONETARY ITEMS WHICH HAVE TO BE VALUED AT THE CLOSING RATE UNDER AS-11. UNDER PARA 5, A TRANSACTI ON IN A FOREIGN CURRENCY HAS TO BE RECORDED IN THE REPORTING CURRENCY BY APPLYIN G TO THE FOREIGN CURRENCY AMOUNT THE EXCHANGE RATE BETWEEN THE REPORTING CURR ENCY AND THE FOREIGN CURRENCY AT THE DATE OF THE TRANSACTION. THIS IS KN OWN AS RECORDING OF TRANSACTION ON INITIAL RECOGNITION. PARA 7 OF AS-11 DEALS WITH REPORTING OF THE EFFECTS OF CHANGES IN EXCHANGE RATES SUBSEQUENT TO INITIAL RECOGNITION. PARA 7(A) INTER ALIA STATES THAT ON EACH BALANCE SHEET DATE M ONETARY ITEMS, ENUMERATED ABOVE, DENOMINATED IN A FOREIGN CURRENCY SHOULD BE REPORTED USING THE CLOSING RATE. IN CASE OF REVENUE ITEMS FALLING UNDER S. 37( 1), PARA 9 OF AS-11 WHICH DEALS WITH RECOGNITION OF EXCHANGE DIFFERENCES, NEEDS TO BE CONSIDERED. UNDER THAT PARA, EXCHANGE DIFFERENCES ARISING ON FOREIGN CURRE NCY TRANSACTIONS HAVE TO BE RECOGNIZED AS INCOME OR AS EXPENSE IN THE PERIOD IN WHICH THEY ARISE, EXCEPT AS STATED IN PARA 10 AND PARA 11 WHICH DEALS WITH EXCH ANGE DIFFERENCES ARISING ON REPAYMENT OF LIABILITIES INCURRED FOR THE PURPOSE O F ACQUIRING FIXED ASSETS, WHICH TOPIC FALLS UNDER S. 43A OF THE 1961 ACT. AT THIS S TAGE, WE ARE CONCERNED ONLY WITH PARA 9 WHICH DEALS WITH REVENUE ITEMS. PARA 9 OF AS -11 RECOGNISES EXCHANGE DIFFERENCES AS INCOME OR EXPENSE. IN CASES WHERE, E .G., THE RATE OF DOLLAR RISES VIS- A-VIS THE INDIAN RUPEE, THERE IS AN EXPENSE DURING THAT PERIOD. THE IMPORTANT POINT TO BE NOTED IS THAT AS-11 STIPULATES EFFECT O F CHANGES IN EXCHANGE RATE VIS-A- VIS MONETARY ITEMS DENOMINATED IN A FOREIGN CURRENC Y TO BE TAKEN INTO ACCOUNT FOR GIVING ACCOUNTING TREATMENT ON THE BALANCE SHEE T DATE. THEREFORE, AN ENTERPRISE HAS TO REPORT THE OUTSTANDING LIABILITY RELATING TO IMPORT OF RAW MATERIALS USING CLOSING RATE OF EXCHANGE. ANY DIFFE RENCE, LOSS OR GAIN, ARISING ON CONVERSION OF THE SAID LIABILITY AT THE CLOSING RAT E, SHOULD BE RECOGNIZED IN THE P&L ACCOUNT FOR THE REPORTING PERIOD. 10. AS STATED ABOVE, ON FACTS IN THE CASE OF M/S. W OODWARD GOVERNOR INDIA (P) LTD., THE DEPARTMENT HAS DISALLOWED THE DEDUCTION/D EBIT TO THE P&L A/C MADE BY THE ASSESSEE IN THE SUM OF RS. 29,49,088 BEING UNRE ALIZED LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION. AT THE VERY OUTSET, IT MAY BE STATED THAT THERE IS NO DISPUTE THAT IN THE PREVIOUS YEARS WHENEVER THE DOLLAR RATE STOOD REDUCED, THE ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 12 OF 43 DEPARTMENT HAD TAXED THE GAINS WHICH ACCRUED TO THE ASSESSEE ON THE BASIS OF ACCRUAL AND IT IS ONLY IN THE YEAR IN QUESTION WHEN THE DOLLAR RATE STOOD INCREASED, RESULTING IN LOSS THAT THE DEPARTMENT HA S DISALLOWED THE DEDUCTION/DEBIT. THIS FACT IS IMPORTANT. IT INDICAT ES THE DOUBLE STANDARDS ADOPTED BY THE DEPARTMENT. 11. THE DISPUTE IN THIS BATCH OF CIVIL APPEALS CENT ERS AROUND THE YEAR(S) IN WHICH DEDUCTION WOULD BE ADMISSIBLE FOR THE INCREASED LIA BILITY UNDER S. 37(1). 12. WE QUOTE HEREINBELOW S. 28(I), S. 29, S. 37(1) AND S. 145 OF THE 1961 ACT, WHICH READ AS FOLLOWS : 'SEC. 28. PROFITS AND GAINS OF BUSINESS OR PROFESSI ONTHE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', (I) THE PROFITS AND GAINS OF ANY BUSINESS OR PROFES SION WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR.' 'SEC. 29. INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION, HOW COMPUTEDTHE INCOME REFERRED TO IN S. 28 SHALL BE C OMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D.' 'SEC. 37. GENERAL(1) ANY EXPENDITURE (NOT BEING EX PENDITURE OF THE NATURE DESCRIBED IN SS. 30 TO 36 AND NOT BEING IN THE NATU RE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHAL L BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION. EXPLANATION : FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO H AVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.' 'SEC. 145. METHOD OF ACCOUNTING(1) INCOME CHARGEAB LE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'I NCOME FROM OTHER SOURCES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-S. (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE AO IS NOT SATISFIED ABOUT THE CORRECT NESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF AC COUNTING PROVIDED IN SUB-S. (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-S . (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE AO MAY MAKE AN ASSESS MENT IN THE MANNER PROVIDED IN S. 144.' ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 13 OF 43 13. AS STATED ABOVE, ONE OF THE MAIN ARGUMENTS ADVA NCED BY THE LEARNED ADDL. SOLICITOR GENERAL ON BEHALF OF THE DEPARTMENT BEFOR E US WAS THAT THE WORD 'EXPENDITURE' IN S. 37(1) CONNOTES 'WHAT IS PAID OU T' AND THAT WHICH HAS GONE IRRETRIEVABLY. IN THIS CONNECTION, HEAVY RELIANCE W AS PLACED ON THE JUDGMENT OF THIS COURT IN THE CASE OF INDIAN MOLASSES COMPANY ( SUPRA). RELYING ON THE SAID JUDGMENT, IT WAS SOUGHT TO BE ARGUED THAT THE INCRE ASE IN LIABILITY AT ANY POINT OF TIME PRIOR TO THE DATE OF PAYMENT CANNOT BE SAID TO HAVE GONE IRRETRIEVABLY AS IT CAN ALWAYS COME BACK. ACCORDING TO THE LEARNED COUN SEL, IN THE CASE OF INCREASE IN LIABILITY DUE TO FOREIGN EXCHANGE FLUCTUATIONS, IF THERE IS A REVALUATION OF THE RUPEE VIS-A-VIS FOREIGN EXCHANGE AT OR PRIOR TO THE POINT OF PAYMENT, THEN THERE WOULD BE NO QUESTION OF MONEY HAVING GONE IRRETRIEV ABLY AND CONSEQUENTLY, THE REQUIREMENT OF 'EXPENDITURE' IS NOT MET. CONSEQUENT LY, THE ADDITIONAL LIABILITY ARISING ON ACCOUNT OF FLUCTUATION IN THE RATE OF FO REIGN EXCHANGE WAS MERELY A CONTINGENT/NOTIONAL LIABILITY WHICH DOES NOT CRYSTA LLIZE TILL PAYMENT. IN THAT CASE, THE SUPREME COURT WAS CONSIDERING THE MEANING OF TH E EXPRESSION 'EXPENDITURE INCURRED' WHILE DEALING WITH THE QUESTION AS TO WHE THER THERE WAS A DISTINCTION BETWEEN THE ACTUAL LIABILITY IN PRAESENTI AND A LIA BILITY DE FUTURO. THE WORD 'EXPENDITURE' IS NOT DEFINED IN THE 1961 ACT. THE W ORD 'EXPENDITURE' IS, THEREFORE, REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED. SEC. 37 ENJOINS THAT ANY EXPENDITURE NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SS. 30 TO 36 LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSES OF THE BUSINESS SHOULD BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. IN SS. 30 TO 36, T HE EXPRESSIONS 'EXPENSES INCURRED' AS WELL AS 'ALLOWANCES AND DEPRECIATION' HAS ALSO BEEN USED. FOR EXAMPLE, DEPRECIATION AND ALLOWANCES ARE DEALT WITH IN S. 32. THEREFORE, PARLIAMENT HAS USED THE EXPRESSION 'ANY EXPENDITURE ' IN S. 37 TO COVER BOTH. THEREFORE, THE EXPRESSION 'EXPENDITURE' AS USED IN S. 37 MAY, IN THE CIRCUMSTANCES OF A PARTICULAR CASE, COVER AN AMOUNT WHICH IS REALLY A 'LOSS' EVEN THOUGH THE SAID AMOUNT HAS NOT GONE OUT FROM THE PO CKET OF THE ASSESSEE. 15. FOR THE REASONS GIVEN HEREINABOVE, WE HOLD THAT , IN THE PRESENT CASE, THE 'LOSS' SUFFERED BY THE ASSESSEE ON ACCOUNT OF THE E XCHANGE DIFFERENCE AS ON THE DATE OF THE BALANCE SHEET IS AN ITEM OF EXPENDITURE UNDER S. 37(1) OF THE 1961 ACT.' 8. IN THE PRESENT CASE ALSO, THE ASSESSEE IS CONSIS TENTLY FOLLOWING THE MERCANTILE METHOD OF ACCOUNTING, THE SAME ACCOUNTING TREATMENT FOR THE F OREIGN EXCHANGE LOSSES AND GAINS HAS BEEN GIVEN BY THE ASSESSEE ALL ALONG, THE ASSESSEE IS MAKING ENTRIES IN RESPECT OF SUCH LOSSES AND GAINS, AND THE TREATMENT IS CONSISTENT W ITH THE ACCOUNTING STANDARDS. AS A MATTER OF FACT, THE ASSESSING OFFICER HAS NOT EVEN RAISED ANY ISSUES WITH RESPECT TO THE ABOVE. HIS CASE IS CONFINED TO THE LOSS BEING NOTIO NAL IN NATURE AND CONTRARY TO THE CBDT GUIDELINES. AS FOR THE CBDT INSTRUCTIONS, IT I S ONLY ELEMENTARY THAT ANY INSTRUCTIONS ISSUED BY THE CBDT CANNOT BIND THE ASS ESSEE EVEN THOUGH THE ASSESSEE IS ENTITLED TO, AND CAN LEGITIMATELY ASK FOR, ANY BENE FITS GRANTED TO THE ASSESSEE BY SUCH INSTRUCTIONS OR CIRCULARS. NOTHING, THEREFORE, TURN S ON THE CBDT INSTRUCTION EVEN IF IT IS ACTUALLY CONTRARY TO THE CLAIM OF THE ASSESSEE. 9. WE HAVE ALSO NOTED THAT, AS PER THE DETAILS FILE D BY THE ASSESSEE, THE FOREIGN EXCHANGE CONTRACTS HAVE BEEN ENTERED INTO FOR GENUINELY REST RICTING ITS BONAFIDE RISK EXPOSURE OF THE ASSESSEE IN RESPECT OF ITS EXPORTS AND IMPORTS TRANSACTIONS. THESE CONTRACTS CANNOT, THEREFORE, BE VIEWED ON A STANDALONE BASIS AS SPECU LATIVE TRANSACTIONS. THESE TRANSACTIONS ARE INTEGRAL PART OF THE BUSINESS TRAN SACTIONS AND ANY LOSS OR GAINS ARISING ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 14 OF 43 FROM THESE TRANSACTIONS, FOR THE DETAILED REASONS S ET OUT ABOVE, ARE DEDUCTIBLE IN COMPUTATION OF PROFITS AND GAINS OF BUSINESS. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE UPHOLD THE ACTION OF THE CIT (A) SO FAR AS THIS RELIEF IN RESPECT OF DELETING THE DISALLOWANCE OF R S. 22,15,55,371 ON ACCOUNT OF LOSS, AT THE END OF THE YEAR, ON FOREIGN EXCHANGE CONTRACTS. WE CONFIRM THE SAME AND DECLINE TO INTERFERE IN THE MATTER. 15. IN VIEW OF THESE BINDING JUDICIAL PRECEDENTS, W ITH WHICH WE ARE IN CONSIDERED AGREEMENT, WE UPHOLD THE PLEA OF THE ASSESSEE AND D IRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 73,00,000. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 16. GROUND NO 3 IS THUS ALLOWED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 18. WE NOW TAKE UP APPEAL OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008-09. 19. IN GROUND NO. 1, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: 1. THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON F ACTS IN DELETING THE UPWARD ADJUSTMENT MADE BY THE TPO ON ACCOUNT OF GUARANTEE GIVEN BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISE LOCATED AT SINGAPORE WITHOUT A NY CONSIDERATION. 20. AS EVIDENT FROM THE FOLLOWING OBSERVATIONS IN T HE IMPUGNED ORDER PASSED BY THE CIT(A), THE CIT(A) HAS SIMPLY FOLLOWED HIS ORDER FO R THE ASSESSMENT YEAR 2007-08: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESS MENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. THIS ISSUE IS COVERED BY MY ORD ER DATED 20-12-2011 IN ASSESSMENT YEAR 2007-08 IN APPELLANT'S OWN CASE. THE RELEVANT EXTRACT IS QUOTED BELOW:- 'TRANSFER PRICING OFFICER MADE ADJUSTMENT IN RESPECT OF GUARANTEE COMMISSION FOR PLEDGING THE SHARES OF MPSEZ HELD BY THE APPELL ANT WITH ICICI BANK LIMITED, SINGAPORE FOR PROVIDING LOAN TO ITS SINGAPORE AE. H OWEVER APPELLANT SUBMITTED THAT IT INTENDED PLEDGING THE SHARES OF MPSEZ FOR LOAN T AKEN BY ITS SINGAPORE AE BUT RBI REFUSED PERMISSION TO PLEDGE THE SHARES AND FINA LLY IT COULD NOT PROVIDE GUARANTEE TO ITS AE. SINCE THE SHARES WERE NOT FINALLY PLEDGED D UE TO REFUSAL OF RBI PERMISSION, THERE IS NO QUESTION OF MAKING ADJUSTMENT IN RESPEC T OF GUARANTEE COMMISSION. APPELLANT SUBMITTED COPY OF LETTER WRITTEN BY ADANI GLOBAL PTE LTD, SINGAPORE DATED 15 JANUARY 2007 TO RBI REQUESTING APPROVAL FOR PLED GE OF SHARES IN FAVOUR OF IDBI TRUSTEESHIP SERVICES LTD (INDIAN SECURITY TRUSTEE A PPOINTED BY ICICI BANK LIMITED, SINGAPORE) AND RBI'S LETTER DATED 21 ST OF FEBRUARY 2007 REFUSING THE PERMISSION TO PLEDGE SHARES OF MPSEZ IN FAVOUR OF IDBI TRUSTEESHI P SERVICES LTD (THESE LETTERS WERE STATED TO HAVE BEEN SUBMITTED TO THE TPO). TPO MADE THE ADDITION ON THE GROUND THAT LOANS WERE TAKEN FROM ICICI BANK LIMITE D, SINGAPORE WHEREAS RBI'S PERMISSION REFUSING PLEDGE OF SHARES WAS IN THE CAS E OF IDBI TRUSTEESHIP LTD. TPO CONSIDERED THESE TWO TRANSACTIONS SEPARATE AND HELD THAT APPELLANT PROVIDED ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 15 OF 43 GUARANTEE TO AE BY PLEDGING ITS INVESTMENT IN SHARE S. HOWEVER AFTER CONSIDERING THESE LETTERS REFERRED EARLIER, IT IS CLEAR THAT ID BI TRUSTEESHIP LTD IS SECURITY TRUSTEE OF ICICI BANK LIMITED, SINGAPORE AND RBI'S LETTER REFU SING THE PERMISSION FOR PLEDGE OF SHARES IS IN RESPECT OF SAME SHARES WHICH WERE PROV IDED FOR GUARANTEE TO ICICI BANK LIMITED, SINGAPORE. THUS, IT IS CLEAR THAT ENTIRE A DDITION IS BASED ON THE MISCONCEPTION THAT THESE TWO ENTITIES REPRESENTED S EPARATE TRANSACTIONS. IN VIEW OF THIS IT IS CLEAR THAT APPELLANT DID NOT PROVIDE GUA RANTEE SERVICES BY PLEDGING SHARES OF MPSEZ FOR WHICH ANY ADJUSTMENT OF GUARANTEE COMMISS ION CAN BE MADE. THE ADDITION MADE BY THE ASSESSING OFFICER IS THEREFORE NOT SUSTAINABLE ON FACTS. APART FROM THIS, APPELLANT ALSO RELIED UPON THE DEC ISION OF ITAT HYDERABAD IN WHICH IT IS HELD THAT FOR PROVIDING CORPORATE GUARANTEE I N OBTAINING LOANS BY AE, NO ADJUSTMENT CAN BE MADE. ITAT IN THE CASE OF FOUR SO FT LTD. VS. DCIT, CIRCLE - 1(3), HYDERABAD (ITA NO. 1495/HYD/10) DATED 09-09-2011 HE LD AS UNDER: '21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE TP LEGISLATION PROVIDES FO R COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE COMPANY DOES NOT FALL WITH IN THE DEFINITION OF INTERNATIONAL TRANSACTION. THE TP LEGISLATION DOES NOT STIPULATE ANY GUIDELINES IN RESPECT TO GUARANTEE TRANSACTIONS. IN THE ABSENCE OF ANY CHARG ING PROVISION, THE LOWER AUTHORITIES ARE NOT CORRECT IN BRINGING AFORESAID T RANSACTION IN THE TP STUDY. IN OUR CONSIDERED VIEW, THE CORPORATE GUARANTEE IS VERY MU CH INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND HENCE, THE SAME CANNOT BE COMPARED TO A BANK GUARANTEE TRANSACTION OF THE BANK OR FINANCIAL INSTITUTION. I N VIEW OF THIS MATTER, WE HOLD THAT NO TP ADJUSTMENT IS REQUIRED IN RESPECT OF CORPORATE G UARANTEE TRANSACTION DONE BY THE ASSESSEE COMPANY. HENCE, WE ANSWER THIS QUESTION IN FAVOUR OF THE ASSESSEE AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE ON THIS IS SUE.' FROM THE ABOVE IT IS CLEAR THAT APPELLANT'S CASE IS COVERED BY THE AFORESAID DECISION ALSO. THEREFORE EVEN OTHERWISE, THE ADJUSTMENT MADE BY THE TPO IN RESPECT OF GUARANTEE COMMISSION IS NOT SUSTAINABLE. ACCORDINGL Y ADDITION MADE BY THE ASSESSING OFFICER BASED ON THE TPO'S ORDER IS DELETED. SINCE ASSESSING OFFICER MADE THE ADDITION/ADJUSTMEN T ON THE IDENTICAL FACTS AND THE SAME ISSUE, THE SAME IS NOT SUSTAINABLE IN VIEW OF THE AFORESAID ORDER. ACCORDINGLY THE ADDITION MADE BY THE ASSESSING OFFICER BASED ON TPO 'S ORDER IS DELETED 21. IN THE MEANTIME, THE ORDER OF THE CIT(A) FOR TH E ASSESSMENT YEAR 2007-08 HAS BEEN CONFIRMED BY A COORDINATE BENCH OF THIS TRIBUNAL, A ND APPROVED BY THE HONBLE JURISDICTIONAL HIGH COURT- AS REPORTED IN [2016] 72 TAXMANN.COM 28 5 (GUJARAT)/[2016] 241 TAXMAN 542 (GUJARAT)/[2017] 396 ITR 313 (GUJARAT). IN THIS VIE W OF THE MATTER, AND RESPECTFULLY FOLLOWING THESE JUDICIAL PRECEDENTS, WE UPHOLD THE RELIEF GRA NTED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 22. GROUND NO. 1 IS THUS DISMISSED. 23. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 16 OF 43 2. THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION MADE U/S 14A TO THE EXTENT OF RS.1,22,15,784/- DESPITE T HE FACT THAT THE COMPANY HAD CLAIMED AN EXPENDITURE OF RS.2,44,31,568/- ON ITS T REASURY DEPARTMENT WHICH MAINLY DEALT WITH INVESTMENTS RELATED TO EARNING EX EMPT INCOME. SUCH EXPENDITURE WAS NOT DISALLOWED BY THE ASSESSEE IN ITS BOOKS AND AS PER RULE 8D(2)(I) SUCH DISALLOWANCE IS NOT TO BE RESTRICTED TO BROKERAGE/S TAMP CHARGES ONLY. 24. SO FAR AS THIS GROUND OF APPEAL IS CONCERNED, T HE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE AMOUNT WHICH HAS BEEN DELETED, OUT OF DISALLOWA NCE UNDER SECTION 14A, IS RS 1,22,15,784 BRING 50% OF THE ADMINISTRATIVE EXPENSE S OF TREASURY DIVISION. THE ASSESSING OFFICER HAD DISALLOWED THESE EXPENSES BY OBSERVING THAT AS UNDERSTOOD FROM THE EXPLANATIONS GIVEN BY THE ASSESSEE DURING THE ASSES SMENT PROCEEDINGS, THE TREASURY DEPARTMENT MANAGES THE INVESTMENT FUNCTIONS AND ALS O THE FOREIGN CURRENCY OPERATIONS LIKE ENTERING INTO FORWARD CONTRACTS, CURRENCY SWAP CONT RACTS AND CANCELLATION AND REALIZATION OF SUCH RECEIPTS AND, FOR THE REASON OF THIS UNDERSTA NDING, THE AO WAS OF THE VIEW THAT IT CAN BE SAID THAT PART OF EXPENDITURE OF TREASURY DEPART MENT IS THE DIRECT EXPENDITURE INCURRED FOR EARNING THE TAX FREE INCOME UNDER RULE 8D(I) AND THEREFORE, 50% OF THE EXPENDITURE INCURRED FOR THE YEAR ON TREASURY DEPARTMENT BEING RS 1,22,1 5,784 (50% OF RS 2,44,31,5568) IS TREATED AS DIRECT EXPENSES DISALLOWABLE UNDER CLAUSE (I) OF RULE 8D. IN APPEAL, LEARNED CIT(A) NOTED THAT WHAT CAN BE DISALLOWED UNDER RULE 8D(I) IS ONL Y DIRECT EXPENSES INCURRED IN EARNING THE EXEMPT INCOME AND WHEN INDIRECT AND ADMINISTRATIVE EXPENSE ARE DISALLOWED UNDER SECTION 8D(I) AS ALSO UNDER SECTION 8D(III), IT WILL AMOUNT TO DOUBLE DISALLOWANCE. THE CIT(A) WAS ALSO OF THE VIEW THAT THE EXPENSES OF TREASURY DEPA RTMENT CANNOT BE TREATED AS DIRECT EXPENSES FOR EARNING TAX EXEMPT INCOME, AND, AS SUCH, HE DEL ETED THE DISALLOWANCE. THE ASSESSING OFFICER IS NOT SATISFIED AND IS IN APPEAL BEFORE US . 25. HAVING HEARD THE RIVAL CONTENTIONS, AND HAVING PERUSED THE MATERIAL ON RECORD, WE AGREE WITH THE LEARNED CIT(A) THAT AN ADHOC ALLOCAT ION OF EXPENSES OF TREASURY DEPARTMENT, IN ADDITION TO THE DISALLOWANCE UNDER RULE 8D(III) FOR SUCH INDIRECT EXPENSES, COMPUTED @ .5% OF RELATED INVESTMENTS EARNING TAX EXEMPT INCOME, W ILL INDEED AMOUNT TO DOUBLE DEDUCTION OF EXPENSES UNDER RULE 8D. WHAT CAN BE DISALLOWED UNDE R RULE 8D(I) IS ONLY DIRECT EXPENSES AND CLEARLY THE EXPENSES ON TREASURY FUNCTION ARE NOT D IRECT EXPENSES TO EARN THE TAX EXEMPT INCOME. EVEN GOING BY THE STAND OF THE ASSESSING OF FICER, TREASURY FUNCTION INCLUDES MANY FUNCTIONS INCLUDING, TO SOME EXTENT, INVESTMENT FUN CTION. THE UNDERSTANDING OF THE ASSESSING OFFICER IS CLEARLY INCORRECT. THERE IS NO BASIS FOR ALLOCATION OF 50% OF EXPENSES, ON PURELY ADHOC BASIS, EITHER. THERE IS NOTHING ON RECORD TO EVEN SHOW THAT THE EXPENSES DISALLOWED UNDER RULE 8D(III) ARE LOWER THAN A REASONABLE SHAR E OF COMMON EXPENSES INCURRED ON EARNING THE TAX EXEMPT INCOME. IN THESE CIRCUMSTANCES, AND BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE STAND OF THE CIT(A) AND DECLINE TO INTE RFERE IN THE MATTER. 26. GROUND NO. 2 IS THUS DISMISSED. 27. IN GROUND NO. 3, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF INTEREST EXPENSE TO THE EXTENT OF RS.24,26,571/- U/ S 36(1)(III) DESPITE COMPREHENSIBLE ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 17 OF 43 FINDINGS IN THE ASSESSMENT ORDER THAT THE FUNDS WER E DIVERTED FOR NON BUSINESS PURPOSES. 28. SO FAR AS THIS GROUND OF APPEAL IS CONCERNED, T HE RELEVANT MATERIAL FACTS ARE LIKE THIS. IT WAS NOTICED BY THE ASSESSING OFFICER THAT WHILE THE ASSESSEE HAS BORROWED RS 300 CRORES FROM UCO BANK, THE ASSESSEE HAD PAID RS 100 CRORES AND RS 15 CRORES TO ADITYA CORPEX LIMITED AND RS 60 CRORES TO GAGAN REALTY LIMITED, W HICH ULTIMATELY FOUND ITS WAY TO PARAS TRADE LINKS LIMITED. IT WAS EXPLAINED BY THE ASSESS EE THAT THE ASSESSEE HAD MADE PURCHASES FROM ADITYA CORPEX LTD (RS 123.88 CRORES) AND GAGAN REALTY LTD (RS 317.48 CRORES). THAT EXPLANATION DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER, AS, ACCORDING TO HIM, THE BALANCE IN THESE ACCOUNTS WAS POSITIVE AND IT WAS NOT A CAS E OF MAKING PAYMENT FOR PURCHASES. IT WAS ALSO NOTED THAT THESE PAYMENTS WERE ALSO FORWARDED BY PARAS TRADE LINKS LIMITED TO BRAKEL KINNAUR POWER LTD WHICH, IN TURN, PAID THE MONEY T O THE GOVERNMENT OF HIMACHAL PRADESH AS FEES FOR HYDEL POWER PROJECT. IT WAS ON THE BASI S OF THIS ANALYSIS THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE MONIES BORROWED FRO M UCO BANK WERE DIVERTED TO BRAKEL KINNAUR POWER LIMITED WITH WHICH THE ASSESSEE HAD N O BUSINESS CONNECTION, AND AS SUCH THE MONIES WERE PUT TO NON BUSINESS USE. THE PROPORTION ATE INTEREST PAID TO UCO BANK, WHICH WORKED OUT TO RS 24,26,571, WAS THEREFORE DISALLOWE D. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO DELETED THE DISALLO WANCE AND NOTED THAT THE ASSESSEE HAD SUBSTANTIAL BUSINESS CONNECTION WITH ADITYA CORPEX AS ALSO GAGAN REALTY AND THE PAYMENTS WERE IN THE NATURE OF ADVANCE PAYMENTS FOR PURCHASE S. IT WAS ALSO NOTED THAT THE ASSESSEE HAD INTEREST FREE FUNDS TO THE TUNE OF RS 3,616.70 CORE S, INCLUDING SHARE CAPITAL OF RS 24.65 CRORES, RESERVE AND SURPLUS OF RS 1,313.01 CRORES AND CURRE NT LIABILITIES OF RS 2,279.04 CRORES, AND THE FUNDS ADVANCED WERE CLEARLY MUCH LESS THAN AVAILABL E INTEREST FREE FUNDS. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 29. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 30. WE FIND THAT THERE IS NO DISPUTE THAT THERE WAS A TRADE RELATIONSHIP BETWEEN THE ASSESSEE AND THE ENTITIES TO WHICH THE PAYMENTS IN QUESTION WERE MADE. THE ASSESSEE HAD MADE HUGE PURCHASES FROM THESE ENTITIES, AND THE FA CT THAT THE AMOUNTS WERE NOT PAYABLE IS NOT REALLY RELEVANT BECAUSE THE CASE OF THE ASSESSE E IS THAT THE PAYMENTS WERE IN THE NATURE OF BUSINESS ADVANCES. WHAT HAPPENS TO THESE MONIES SUB SEQUENTLY IS NOT RELEVANT SO FAR AS THE TREATMENT OF ADVANCES IN THE HANDS OF THE ASSESSEE IS CONCERNED. THAT ASPECT IS WHOLLY IRRELEVANT FOR OUR PURPOSES. AS LONG AS THE PAYMENT S ARE MADE IN THE COURSE OF ASSESSEES BUSINESS, IT DOES NOT REALLY MATTER, SO FAR AS INTE REST DISALLOWANCE IN THE HANDS OF THE ASSESSEE IS CONCERNED, AS TO WHERE THESE MONIES ULTIMATELY F IND ITS WAY. THATS NOT IN THE CONTROL OF THE ASSESSEE ANYWAY. NOTHING REALLY TURNS ON THESE MONI ES ULTIMATELY FINDING ITS WAY TO ANOTHER ENTITY, ADMITTEDLY UNRELATED TO THE ASSESSEE. THE R EASON FOR MAKING THE INTEREST DISALLOWANCE IS THUS NOT SUSTAINABLE IN LAW. IN ANY EVENT, THE A VAILABILITY OF INTEREST FREE FUNDS IS FAR MORE THAN INTEREST FREE FUNDS ADVANCED TO THESE ENTITIES . IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE TH E CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 31. GROUND NO. 3 IS THUS DISMISSED. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 18 OF 43 32. IN GROUND NO. 4, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.8,07,818/- CLAIMED ON SHARES DESPITE THE FACT THAT SHARES ARE NOT DEPRECIABLE ASSETS. 33. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SQUARELY COVERED, IN FAVOUR OF THE ASSESSEE, BY A DECISION DATED 1 ST JANUARY 2016 IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2007-08. A COPY OF THE SAID DECISION WAS PLACE D BEFORE US AS WELL. 34. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE RELIEF GRANTED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 35. GROUND NO. 4 IS THUS DISMISSED. 36. GROUND NO. 5 IS ALREADY DEALT WITH, IN THE COUR SE OF DEALING WITH THE APPEAL FILED BY THE ASSESSEE EARLIER IN THIS ORDER, AND WE NEED NOT REPEAT OUR FINDINGS THEREON. SUFFICE TO SAY, FOR THE REASONS SET OUT EARLIER, THIS GROUND IS ALS O DISMISSED. 37. IN GROUND NO. 6, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: 6. THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 80IA TO THE EXTENT OF RS.1,23,18,5 85/- DESPITE THE FACT THAT THE SAID RECEIPTS REPRESENTS MISCELLANEOUS INCOME WHICH WAS NOT DERIVED FROM THE UNDERTAKING ITSELF. 38. SO FAR AS THIS GRIEVANCE OF THE ASSESSING OFFIC ER IS CONCERNED, THE ASSESSING OFFICER WAS OF THE VIEW THAT RS 1,23,18,585 RECEIVED BY THE ASSESSEE AS MISCELLANEOUS RECEIPTS ON ACCOUNT OF WEIGHMENT CHARGES OF THE TRUCKS WAS A S TEP REMOVED FROM THE PORT OPERATIONS AND NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. THE PLEA OF THE ASSESSEE THAT THESE CHARGES REPRESENT WEIGHMENT CHARGES AND TOKEN FEES FROM THE TRUCKS ENTERING THE PORT AREA AND WATER CHARGES ETC ARE DIRECTLY CONNECTED WITH THE BUSINES S CARRIED ON BY THE ASSESSEE, PROFITS OF WHICH ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA , WAS REJECTED BY THE ASSESSING OFFICER. RELYING UPON HONBLE SUPREME COURTS JUDGMENT IN TH E CASE OF LIBERTY INDIA LTD VS CIT (3 17 ITR 218), THE ASSESSING OFFICER REJECTED THE CLA IM OF DEDUCTION UNDER SECTION 80IA IN RESPECT OF THESE RECEIPTS. WHEN THE MATTER TRAVELLE D IN APPEAL BEFORE THE CIT(A), LEARNED CIT(A) DELETED THE DISALLOWANCE ON THE BASIS OF FOL LOWING REASONING: 39. AGGRIEVED BY THE RELIEF SO GRANTED BY THE CIT(A ), THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 40. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 41. WE HAVE NOTED THAT THE ELIGIBLE BUSINESS ACTIVI TY OF THE ASSESSEE IS OPERATIONS AND MAINTENANCE OF THE PORT, AND THAT THE MISCELLANEOUS RECEIPTS REPRESENTS RECEIPTS ON ACCOUNT OF ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 19 OF 43 ACTIVITIES WHICH PERTAIN TO OPERATIONS AND MAINTENA NCE OF PORT. THE RECEIPTS FOR WEIGHMENT CHARGES AND TOKEN CHARGES, AND THE ALLIED ACTIVITIE S IN QUESTION, CANNOT BE CONSIDERED IN ISOLATION WITH THE OPERATIONS AND MAINTENANCE OF PO RT. IN VIEW OF THESE DISCUSSIONS, AND IN THE LIGHT OF WELL REASONED FINDINGS OF THE CIT(A) WITH WHICH WE ARE IN CONSIDERED AGREEMENT, WE UPHOLD THE RELIEF GRANTED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 42. GROUND NO. 6 IS ALSO DISMISSED. 43. IN THE RESULT, THE APPEAL OF THE ASSESSING OFFI CER FOR THE ASSESSMENT YEAR 2008-09 IS DISMISSED. 44. WE NOW TAKE UP CROSS APPEALS FOR THE ASSESSMENT YEAR 2009-10 WHICH ARE DIRECTED AGAINST THE ORDER DATED 8 TH OCTOBER 2014 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2009- 10. 45. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN PARTLY SUSTAINING THE UPWARD ADJUSTMENT OF RS.4,51,82,460 MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE TRANSFER PRIC ING OFFICER'S ORDER DATED 29.1.2013 PASSED U/S.92CA(3) OF THE IT. ACT, ON THE ASSUMPTION THAT THE APPELLANT- COMPANY SHOULD HAVE CHARGED GUARANTEE COMMISSION FR OM ITS WHOLLY OWNED FOREIGN SUBSIDIARIES IN CONSIDERATION OF PROVIDING CORPORATE GUARANTEE AGGREGATING TO RS.152.85 CRORES TO THE LENDERS PROVIDING BORROW INGS TO THE SAID SUBSIDIARIES. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED C.I.T. (APPEALS) ERRED IN CONFIRMING THE ABOVE MENTIONED U PWARD ADJUSTMENT OF RS.4,51,82,460 TO THE EXTENT OF RS.3,05,70,000 BY A DOPTING AN ARBITRARY RATE OF 2% OF THE TOTAL GUARANTEE AMOUNT AS AGAINST THE RATE O F 2.956% ADOPTED BY THE TRANSFER PRICING OFFICER. (C) WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.IT. (APPEALS) ERRED IN ADOPTING EXCESSIVE AND UNREASONABLE RATE OF GUARANTEE COMMISSION AT 2%, COMPLETELY IGNORING THE COMPARABLE CASE OF EVEREST KANTO CYLINDER CITED BEFORE HIM BY THE APPE LLANT-COMPANY WHEREIN THE HON'BLE MUMBAI ITAT HAD CONSIDERED A RATE OF 0.5% A S REASONABLE. (D) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED C.I.T. (APPEALS) FURTHER ERRED IN REJECTING THE FACTUAL CL AIM MADE BY THE APPELLANT- COMPANY AND SUPPORTED BY DOCUMENTARY EVIDENCE, THAT IT HAD OBTAINED GUARANTEE FROM STATE BANK OF INDIA, IN CONNECTION WITH APPELL ANT-COMPANY'S OPERATING CONTRACT WITH KARNATAKA POWER CORPORATION AT A GUAR ANTEE FEE OF 0.25%, AND THEREFORE, WITHOUT PREJUDICE TO THE CLAIM THAT NO A DJUSTMENT CAN BE MADE U/S.92CA(3) OF THE I.T. ACT, AT THE MOST SIMILAR RA TE OF 0.25% SHOULD BE ADOPTED FOR THE PURPOSE OF BENCHMARKING IN THE CASE OF THE APPE LLANT-COMPANY. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 20 OF 43 46. IN A RELATED GRIEVANCE, RAISED BY THE ASSESSING OFFICER AS FIRST GROUND OF APPEAL IN HIS APPEAL FOR AY 2009-10 WHICH WE WILL TAKE UP AT TH IS STAGE, THE ISSUE RAISED IS AS FOLLOWS:- 1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE UPWARD ADJUSTMENT WORKED OUT BY THE TPO TO RS.3,05,70,000/ - TO THE ASSESSEE'S TOTAL INCOME MADE ON ACCOUNT OF GUARANTEE FEES IN RESPECT OF COR PORATE GUARANTEES PROVIDED BY THE ASSESSEE ON BEHALF OF ITS FOREIGN SUBSIDY COMPA NIES. 47. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE HAD EXTENDED CORPORATE GUARANTEES IN RESPECT OF BORROWINGS MADE BY ITS ASS OCIATED ENTERPRISES, NAMELY ADANI GLOBAL PTE LTD SINGAPORE (RS 50.95 CRORES) AND ADANI GLOBA L LIMITED, UAE (RS 101.90 CRORES). THE ASSESSEE DID NOT CHARGE ANY CONSIDERATION FROM THE AES FOR ISSUANCE OF THESE GUARANTEES. DURING THE COURSE OF ASCERTAINING ARMS LENGTH PRICE OF THESE GUARANTEES TRANSACTIONS, THE TPO WAS OF THE VIEW THAT A REASONABLE GUARANTEE COM MISSION OUGHT TO HAVE BEEN CHARGED IN RESPECT OF ISSUANCE OF THESE GUARANTEES. THE ARGUM ENT OF THE ASSESSEE TO THE EFFECT THAT IT DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION WAS REJ ECTED BY THE TPO. HE HELD THAT THE ARMS LENGTH PRICE OF THESE GUARANTEES SHOULD BE COMPUTED @ 2.956%. THE REASONING FOR THE SAME WAS SET OUT AS FOLLOWS:- 5.13. PROVIDING GUARANTEE BY A PARENT WITH A HIGHE R RATING ENSURES IMPROVEMENT IN THE RATING OR REDUCTION IN CREDIT RISK SPREAD TO TH E EXTENT OF THE RATING OF THE PARENT. THE PARENT, WITH ITS BETTER RATING, IS ABLE TO PROV IDE BENEFIT IN THE FORM OF LOWER SPREAD TO ITS AE. SUCH RISK SPREAD IS EFFECTIVELY M EASURED BY DIFFERENCE IN RISK SPREAD BY DIFFERENTLY RATED BONDS BEING TRADED IN THE MARK ET. AS DISCUSSED ABOVE, THE CREDIT SPREAD IN RESPECT OF THE ASSESSEE AND ITS AE IS PRO POSED TO BE ADOPTED AS ABOVE. ON ANALYSIS OF OVER 1200 CORPORATE BOND DATA PUBLICLY AVAILABLE ON THE INTERNET (HTTP://REPORT.FINANCE.YAHOO.COM), WITH 167 SAMPLES PERTAINING TO FY 2008-09, IT IS SEEN THAT THE AVERAGE DIFFERENCE IN COUPON RATE (YI ELD OR INTEREST RATE) IN RESPECT OF AA RATED BONDS AND B RATED BONDS COMES TO 2.706%AGE POINTS. A COPY OF THE WORKING CARRIED OUT HAS BEEN HANDED OVER TO THE ASSESSEE AL ONGWITH THE SHOW CAUSE LETTER IN A CD. A CURRENCY RISK OF 25 BASIS POINTS IS FOUND SUF FICIENT TO CATER TO CURRENCY RISK AS INDIAN CURRENCY IS MORE LIKELY TO FLUCTUATE AGAINST DOLLAR RAISING THE RISK ASSUMED BY THE INDIAN COMPANY GIVING THE GUARANTEE, THE GUARAN TEE FEE WOULD WORK OUT TO 2.956% . THE ASSESSEE HAS GIVEN GUARANTEES TO THE E XTENT OF RS 152.85 CRORE ON BEHALF OF THE DUBAI COMPANY. ACCORDINGLY, THE GUARANTEE FE E IS COMPUTED AT RS.4,51,82,460/-. 48. IT WAS IN THIS BACKDROP THAT AN ARMS LENGTH PRI CE ADJUSTMENT OF RS.4,51,82,460/- WAS MADE BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSE SSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). WHILE THE CIT(A) UPHELD THE STAND OF T HE TPO IN PRINCIPLE, HE REDUCED THE ALP ADJUSTMENT FOR THE GUARANTEES @ 2% OF THE TOTAL GUA RANTEE PROVIDED. THE OPERATIVE PORTION OF THE ORDER OF THE CIT(A) IS AS FOLLOWS:- 4.5 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE OBSERVATIONS OF THE TPO AND THE CONTENTIONS OF THE LD. A.R. THE TRANSACTION REPRESE NTING THE ADVANCEMENT OF LOAN IS COVERED BY THE DEFINITION OF 'INTERNATIONAL TRANSAC TION' WHICH NEEDS TO BE BENCHMARKED. SIMILARLY PROVIDING GUARANTEE IS ALSO COVERED BY THE DEFINITION OF ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 21 OF 43 'INTERNATIONAL TRANSACTION'. AFTER THE ACT WAS RETR OSPECTIVELY AMENDED W.E.F. 01.04.2002 BY THE FINANCE ACT 2012, THERE IS NO AMB IGUITY THAT PROVIDING GUARANTEE TO AN ASSOCIATED ENTERPRISE IS AN INTERNATIONAL TRA NSACTION WHICH NEEDS TO BE BENCHMARKED. THE FOLLOWING EXPLANATION WAS INSERTED BY THE F.A., 2012: 'EXPLANATION- FOR THE REMOVAL OF DOUBTS, IT IS HERE BY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHAL L INCLUDE - (A) . . (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT O R RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS: THUS THE EXPLANATION, INSERTED VIDE THE RETROSPECTI VE AMENDMENT, MAKES IT AMPLY CLEAR THAT THE TRANSACTION OF GUARANTEE WAS ALREADY INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTION' AND THE SAME HAS NOW BE EN CLARIFIED THROUGH THE RETROSPECTIVE AMENDMENT. THEREFORE THE CONTENTIONS OF THE APPELLANT THAT PROVIDING CORPORATE GUARANTEE TO AES IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION HAS TO FAIL. THIS VIEW IS SUPPORTED BY THE DECISION OF MUM BAI TRIBUNAL IN THE CASE OF EVEREST KANTO CYLINDER [34 TAXMAN.COM 19 MUMBAI ITAT], DISC USSED BY THE TPO [AFTER REPRODUCING THE RELEVANT PARA OF THE ORDER] AT PARA -5.10 OF THE ORDER U/S 92CA[3). THE TPO WAS JUSTIFIED IN BENCHMARKING THE TRANSACTI ONS. THE DELHI TRIBUNAL JUDGEMENT [RELIED ON BY THE A.R. IN THE CASE OF BHA RTI AIRTEL LTD. IS NOT APPLICABLE TO THE INSTANT CASE, AS THE APPELLANT IS NOT ABLE TO P ROVE THAT IT HAS NOT INCURRED ANY COST FOR THE GUARANTEE PROVIDED [AS WAS DONE IN THE CASE OF BHARTI AIRTEL LTD.]. 4.6 THE NEXT ISSUE FOR THE CONSIDERATION IS REGARD ING THE QUANTUM OF UPWARD ADJUSTMENT TO BE MADE. IN THIS CONNECTION, IT IS SE EN THAT THE TPO ADOPTED THE RATE AT 2.956% [ON THE TOTAL AMOUNT OF THE GUARANTEE PROVID ED BY THE APPELLANT OF RS. 152.85 CRORES]. IN THE CASE OF EVEREST KANTO CYLINDER, REL IED ON BY THE A.R., MUMBAI TRIBUNAL HELD AS UNDER: 'WE HAVE ALREADY COME TO THE CONCLUSION IN THE FORE GOING PARAS THAT THE RATE OF 3% BY TAKING EXTERNAL COMPARABLE BY THE TPO, CAN NOT BE SUSTAINED IN FACTS OF THE PRESENT CASE. WE ALSO FIND THAT IN AN INDEPE NDENT TRANSACTION, THE ASSESSEE HAS PAID 0.6% GUARANTEE COMMISSION TO ICIC I BANK INDIA FOR ITS CREDIT ARRANGEMENT. THIS COULD BE A VERY GOOD PARAM ETER AND A COMPARABLE FOR TAKING IT AS INTERNAL CUP AND COMPARING THE SAM E WITH THE TRANSACTION WITH THE AE. THE CHARGING OF 0.5% GUARANTEE COMMISS ION FROM THE AE IS QUITE NEAR TO 0.6%, WHERE THE ASSESSEE HAS PAID INDEPENDE NTLY TO THE ICICI BANK AND CHARGING OF GUARANTEE COMMISSION AT THE RATE OF 0.5% FROM ITS AE CAN BE SAID TO BE AT ARMS LENGTH.' IN THE INSTANT CASE THE APPELLANT HAS FURNISHED DOC UMENTARY EVIDENCE TO SHOW THAT IT HAD OBTAINED GUARANTEE FROM SBI IN CONNECTION WITH THE APPELLANT'S OPERATING CONTRACT WITH KARNATAKA POWER CORPORATION AT A GUAR ANTEE FEE OF 0.25%. GOING BY ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 22 OF 43 THE ABOVE MENTIONED DECISION OF THE MUMBAI TRIBUNAL , SIMILAR RATE OF 0.25% CAN BE ADOPTED FOR THE PURPOSES OF BENCHMARKING IN THE INS TANT CASE. HOWEVER, IT IS SEEN THAT ONE OF THE GROUP CONCERNS OF THE APPELLANT COMPANY VIZ. ADANI PORT & SEZ LTD. PAID GUARANTEE FEE @ 0.95% TO AXIS BANK IN CONNECTION WI TH THE LISTING AGREEMENT WITH BOMBAY STOCK EXCHANGE. THIS GOES TO DEMONSTRATE THA T THE GUARANTEE FEE CHARGED BY THE BANKS IS NOT FIXED, BUT VARIES FROM TRANSACTION TO TRANSACTION. SINCE THE APPELLANT HAS NOT FURNISHED DETAILS OF ALL SUCH TRANSACTIONS OF GUARANTEE GIVEN BY THE BANKS IN ITS CASE AND IN THE GROUP CASES, IT IS CONSIDERED R EASONABLE TO ADOPT THE RATE AT 2%. IN ACCORDANCE WITH THE SAFE-HARBOUR RULES 10TB TO 10TD , APPLICABLE FROM A.Y. 2013-14, THE RATES SPECIFIED ARE 1.75% AND 2%. THESE RULES A LSO OF HELP IN ARRIVING @ 2% IN THE INSTANT CASE. ACCORDINGLY, THE UPWARD ADJUSTMEN T IS BEING TAKEN AT 2% OF TOTAL GUARANTEE PROVIDED BY THE APPELLANT OF RS.152.85 CR ORES. THE QUANTUM OF ADJUSTMENT WORKS OUT TO RS.3,05,70,000/-. THE ADJUSTMENT MADE BY THE A.O. [ ON THE BASIS OF THE ORDER OF THE TPO] IS RESTRICTED TO THE SAID AMOUNT OF RS.3,05,70,000/-. BALANCE ADJUSTMENT IS DELETED. THIS GROUND OF APPEAL IS PAR TLY ALLOWED. 49. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 50. THE ASSESSING OFFICER IS ALSO NOT SATISFIED WIT H THE QUANTUM RELIEF GIVEN BY THE CIT(A) AND IS IN APPEAL BEFORE US. 51. WE FIND THAT THIS ISSUE IS NOW COVERED, IN FAVO UR OF THE ASSESSEE, BY A SERIES OF DECISIONS IN VARIOUS CASES, INCLUDING IN THE CASE O F MICRO INK LTD VS ACIT (157 ITD 132), ANALYSED THE ISSUE IN GREAT DETAIL AND TAKEN NOTE O F DECISIONS BY VARIOUS COORDINATE BENCHES, AND THEN COME TO THE CONCLUSION THAT ISSUANCE OF CO RPORATE GUARANTEES DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION WITH THE MEANINGS OF SECT ION 92B. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IS THUS COVERED, IN FAVOUR OF THE ASSESSEE AND IN ASSESSEES OWN CASES, BY COORDINATE BENCHES OF TRIBUNAL. WE MAY ALSO ADD THA T HONBLE JURISDICTIONAL HIGH COURT HAS ADMITTED APPEAL TO DETERMINE THE QUESTION AS TO WHE THER OR NOT ISSUANCE OF CORPORATE GUARANTEES AMOUNTS TO INTERNATIONAL TRANSACTION WIT HIN MEANINGS OF SECTION 92B. IN THE CASE OF MICRO INK (SUPRA), THE COORDINATE BENCH, SPEAKIN G THROUGH ONE OF US (I.E. THE VICE PRESIDENT), HAS HELD, AS SUMMARIZED BY THE HEADNOTE S ON THE TAXMANN.COM, AS FOLLOWS: I. IT IS ONLY ELEMENTARY THAT THE DETERMINATION OF ARM'S LENGTH PRICE, UNDER THE SCHEME OF THE INTERNATIONAL TRANSFER PRICING SET OU T IN THE ACT, CAN ONLY BE DONE IN RESPECT OF AN 'INTERNATIONAL TRANSACTION'. SECTION 92(1) PROVIDES THAT, '(A)NY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE'. IN ORDER TO ATTRACT THE ARM'S LENGTH PRICE ADJUSTMENT, THEREFORE, A TRANSACTION HAS TO BE AN 'INTERNATIONAL TRANSACTION ' FIRST. THE EXPRESSION 'INTERNATIONAL TRANSACTION' IS A DEFINED EXPRESSION. SECTION 92B D EFINES THE EXPRESSION 'INTERNATIONAL TRANSACTION'. [PARA 21] II. THE 'OECD' TRANSFER PRICING GUIDELINES FOR MULT INATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' SPECIFICALLY RECOGNISES THAT ANY A CTIVITY IN THE NATURE OF SHAREHOLDER ACTIVITY, WHICH IS SOLELY BECAUSE OF OWNERSHIP INTE REST IN ONE OR MORE OF THE GROUP MEMBERS, I.E., IN THE CAPACITY AS SHAREHOLDER 'WOUL D NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPANIES'. IT IS THUS CLEAR THAT A SHARE HOLDER ACTIVITY, IN ISSUANCE OF ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 23 OF 43 CORPORATE GUARANTEES, IS TAKEN OUT OF AMBIT OF THE GROUP SERVICES. CLEARLY, THEREFORE, AS LONG AS A GUARANTEE IS ON ACCOUNT OF, WHAT CAN BE T ERMED AS 'SHAREHOLDER'S ACTIVITIES', EVEN ON THE FIRST PRINCIPLES, IT IS OUTSIDE THE AMB IT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF ARM'S LENGTH PRICE. IT IS ESSENTIAL TO A PPRECIATE, AT THIS STAGE, THE DISTINCTION IN A SERVICE AND A BENEFIT. ONE MAY BE BENEFITED EV EN WHEN NO SERVICES ARE RENDERED, AND, THEREFORE, IN MANY A SITUATION IT'S A 'BENEFIT TEST' WHICH IS CRUCIAL FOR TRANSFER PRICING LEGISLATION. [PARA 36] III. THERE CAN BE ACTIVITIES WHICH BENEFIT THE GROU P ENTITIES BUT THESE ACTIVITIES NEED NOT NECESSARILY BE 'PROVISION FOR SERVICES'. T HE FACT THAT THE OECD CONSIDERS SUCH ACTIVITIES IN THE SERVICES SEGMENT DOES NOT AL TER THE CHARACTER OF THE ACTIVITIES. WHILE THE GROUP ENTITY IS THUS INDEED BENEFITTED BY THE SHAREHOLDER ACTIVITIES, THESE ACTIVITIES DO NOT NECESSARILY CONSTITUTE SERVICES. THERE IS NO SUCH EXPRESS REFERENCE TO THE BENEFIT TEST, OR TO THE CONCEPT OF BENEFIT ATTA CHED TO THE ACTIVITY, IN RELEVANT DEFINITION CLAUSE OF 'INTERNATIONAL TRANSACTION' UN DER THE DOMESTIC TRANSFER PRICING LEGISLATION. IT IS ALSO ESSENTIAL TO TAKE NOTE OF T HE LEGAL POSITION, IN INDIA, IN THIS REGARD. NO MATTER HOW DESIRABLE IS IT TO READ SUCH A TEST I N THE DEFINITION OF THE INTERNATIONAL TRANSACTION' UNDER DOMESTIC TRANSFER PRICING LEGISL ATION, AS IS THE SETTLED LEGAL POSITION, IT IS NOT OPEN TO COURT TO INFER THE SAME. [PARA 37 ] IV. ONE MORE THING WHICH IS CLEARLY DISCERNIBLE FRO M THE ABOVE DISCUSSIONS IS THAT THE TESTS RECOGNIZED BY THESE GUIDELINES ARE INTERW OVEN TWIN TESTS OF BENEFIT AND ARM'S LENGTH. BENEFIT TEST IMPLIES THE RECIPIENT GROUP ME MBER SHOULD GET 'ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCIAL POSITION '. THE BENEFIT TEST IS INTERLINKED WITH THE ARM'S LENGTH TEST IN THE SENSE THAT IT SEE KS AN ANSWER TO THE QUESTION WHETHER UNDER A SIMILAR SITUATION AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY CONCERNED, OR WOULD HAVE PERFORMED THE ACTIVITY IN-HOUSE FOR ITSELF. SO FAR AS THE BENEFIT TEST IS CONCERNED, IT IS ALIEN TO TH E DEFINITION OF INTERNATIONAL TRANSACTION' UNDER THE INDIAN TRANSFER PRICING LEGISLATION. SO F AR AS ARM'S LENGTH TEST IS CONCERNED, IT PRESUPPOSES THAT SUCH A TRANSACTION IS POSSIBLE IN ARM'S LENGTH SITUATION. HOWEVER, IN A SITUATION IN WHICH THE SUBSIDIARY DOES NOT HAVE ADE QUATE FINANCIAL STANDING OF ITS OWN AND IS INADEQUATELY CAPITALIZED, NONE WILL GUARANTE E FINANCIAL OBLIGATIONS OF SUCH A SUBSIDIARY. [PARA 38] V. THE ISSUANCE OF FINANCIAL GUARANTEE IN FAVOUR OF AN ENTITY, WHICH DOES NOT HAVE ADEQUATE STRENGTH OF ITS OWN TO MEET SUCH OBLIGATIO NS, WILL RARELY BE DONE. THE VERY COMPARISON, BETWEEN THE CONSIDERATION FOR WHICH BAN KS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS WITH THE CONSIDERATION FOR WH ICH THE CORPORATES ISSUE GUARANTEES FOR THEIR SUBSIDIARIES, IS ILL CONCEIVED BECAUSE WH ILE BANKS SEEK TO BE COMPENSATED, EVEN FOR THE SECURED GUARANTEES, FOR THE FINANCIAL RISK OF LIQUIDATING THE UNDERLYING SECURITIES AND MEETING THE FINANCIAL COMMITMENTS UN DER THE GUARANTEE, THE GUARANTEES ISSUED BY THE CORPORATE FOR THEIR SUBSIDIARIES ARE RARELY, IF AT ALL, BACKED BY ANY UNDERLYING SECURITY AND THE RISK IS ENTIRELY ENTREP RENEURIAL IN THE SENSE THAT IT SEEKS TO MAXIMISE PROFITABILITY THROUGH AND BY THE SUBSIDIAR IES. VI. IT IS INHERENTLY IMPOSSIBLE TO DECIDE ARM'S LEN GTH PRICE OF A TRANSACTION WHICH CANNOT TAKE PLACE IN ARM'S LENGTH SITUATION. THE MO TIVATION OR TRIGGER FOR ISSUANCE OF ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 24 OF 43 SUCH GUARANTEES IS NOT THE KIND FOR CONSIDERATION F OR WHICH A BANKER, FOR EXAMPLE, ISSUE THE GUARANTEES, BUT IT IS MAXIMIZATION OF GAI NS FOR THE RECIPIENT ENTITY AND THUS THE MNE GROUP AS A WHOLE. IN GENERAL, THUS, THE CON SIDERATION FOR ISSUANCE OF CORPORATE GUARANTEES ARE OF A DIFFERENT CHARACTER A LTOGETHER. [PARA 39] VII. AT THIS STAGE, IT WOULD BE APPROPRIATE TO ANAL YZE THE BUSINESS MODEL OF BANK GUARANTEES, WITH WHICH CORPORATE GUARANTEES ARE SOM ETIMES COMPARED, IN THE CONTEXT OF BENCHMARKING THE ARM'S LENGTH PRICE OF CORPORATE GUARANTEES. A BANK GUARANTEE IS A SURETY THAT THE BANK, OR THE FINANCIAL INSTITUTION ISSUING THE GUARANTEE, WILL PAY OFF THE DEBTS AND LIABILITIES INCURRED BY AN INDIVIDUAL OR A BUSINESS ENTITY IN CASE THEY ARE UNABLE TO DO SO. BY PROVIDING A GUARANTEE, A BANK O FFERS TO HONOUR RELATED PAYMENT TO THE CREDITORS UPON RECEIVING A REQUEST. THIS REQUIR ES THAT BANK HAS TO BE VERY SURE OF THE BUSINESS OR INDIVIDUAL TO WHOM THE BANK GUARANT EE IS BEING ISSUED. SO, BANKS RUN RISK ASSESSMENTS TO ENSURE THAT THE GUARANTEED SUM CAN BE RETRIEVED BACK FROM THE BUSINESS. THIS MAY REQUIRE THE BUSINESS TO FURNISH A SECURITY IN THE SHAPE OF CASH OR CAPITAL ASSETS. ANY ENTITY THAT CAN PASS THE RISK A SSESSMENT AND PROVIDE SECURITY MAY OBTAIN A BANK GUARANTEE. VIII. THE CONSIDERATION FOR THE ISSUANCE OF BANK GU ARANTEE, SO FAR AS A BANKER IS CONCERNED, IS THIS. WHEN THE CLIENT IS NOT ABLE TO HONOUR THE FINANCIAL COMMITMENTS AND WHEN CLIENT IS NOT ABLE TO MEET HIS FINANCIAL C OMMITMENTS AND THE BANK IS CALLED UPON TO MAKE THE PAYMENTS, THE BANK WILL SEEK A COM PENSATION FOR THE ACTION OF ISSUING THE BANK GUARANTEE, AND FOR THE RISK IT RUN S INHERENT IN THE PROCESS OF MAKING THE PAYMENT FIRST AND REALIZING IT FROM THE UNDERLY ING SECURITY AND THE CLIENT. EVEN WHEN SUCH GUARANTEES ARE BACKED BY ONE HUNDRED PERC ENT DEPOSITS, THE BANK CHARGES A GUARANTEE FEES. IN A SITUATION IN WHICH THERE IS NO UNDERLYING ASSETS WHICH CAN BE REALIZED BY THE BANK OR THERE ARE NO DEPOSITS WITH THE BANK WHICH CAN BE APPROPRIATED FOR PAYMENT OF GUARANTEE OBLIGATIONS, THE BANKS WIL L RARELY, IF AT ALL, ISSUE THE GUARANTEES. IX. OF COURSE, WHEN A CLIENT IS SO WELL PLACED IN H IS CREDIT RATING THAT BANKS CAN ISSUE HIM CLEAN AND UNSECURED GUARANTEES, HE GETS N O FURTHER ECONOMIC VALUE BY A CORPORATE GUARANTEE EITHER. ONE CAN NOW COMPARE THI S KIND OF A GUARANTEE WITH A CORPORATE GUARANTEE. THE GUARANTEES ARE ISSUED WITH OUT ANY SECURITY OR UNDERLYING ASSETS. WHEN THESE GUARANTEES ARE INVOKED, THERE IS NO OCCASION FOR THE GUARANTOR TO SEEK RECOURSE TO ANY ASSETS OF THE GUARANTEED ENTIT Y FOR RECOVERING PAYMENT OF DEFAULT GUARANTEES. THE GUARANTEES ARE NOT BASED ON THE CRE DIT ASSESSMENT OF THE ENTITY, IN RESPECT OF WHICH THE GUARANTEES ARE ISSUED, BUT ARE BASED ON THE BUSINESS NEEDS OF THE ENTITY IN QUESTION. EVEN IN A SITUATION IN WHICH TH E GROUP ENTITY IS SURE THAT THE BENEFICIARY OF GUARANTEE HAS NO FINANCIAL MEANS TO REIMBURSE IT FOR THE DEFAULTED GUARANTEE AMOUNTS, WHEN INVOKED, THE GROUP ENTITY W ILL ISSUE THE GUARANTEE NEVERTHELESS BECAUSE THESE ARE COMPULSIONS OF HIS G ROUP SYNERGY RATHER THAN THE ASSURANCE THAT HIS FUTURE OBLIGATIONS WILL BE MET. X. THERE IS NO MEETING GROUND IN THESE TWO TYPES OF GUARANTEES, SO FAR THEIR ECONOMIC TRIGGERS AND BUSINESS CONSIDERATIONS ARE C ONCERNED, AND JUST BECAUSE THESE ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 25 OF 43 INSTRUMENTS SHARE A COMMON SURNAME, I.E., 'GUARANTE E', THESE INSTRUMENTS CANNOT BE SAID TO BE BELONG TO THE SAME ECONOMIC GENUS. OF CO URSE, THERE CAN BE SITUATIONS IN WHICH THERE MAY BE ECONOMIC SIMILARITIES, IN THIS R ESPECT, MAY BE PRESENT, BUT THESE ARE MORE OF AN EXCEPTION THAN THE RULE. IN GENERAL, THEREFORE, BANK GUARANTEES ARE NOT COMPARABLE WITH CORPORATE GUARANTEES. [PARA 40] XI. THERE HAS TO BE SOMETHING ON RECORD TO INDICATE OR SUGGEST THAT THE FUNDS RAISED BY THE SUBSIDIARY, WITH THE HELP OF THE GUAR ANTEE GIVEN BY THE ASSESSEE, ARE NOT FOR ITS OWN BUSINESS PURPOSES. AS A PLAIN LOOK AT T HE DETAILS OF CORPORATE GUARANTEES WOULD SHOW, THESE GUARANTEES WERE ISSUED TO VARIOUS BANKS IN RESPECT OF THE CREDIT FACILITIES AVAILED BY THE SUBSIDIARIES FROM THESE B ANKS. THE GUARANTEES WERE PRIMA FACIE IN THE NATURE OF THE SHAREHOLDER ACTIVITY AS IT WAS TO PROVIDE, OR COMPENSATE FOR LACK OF, CORE STRENGTH FOR RAISING THE FINANCES FRO M BANKS. NO MATERIAL, INDICATING TO THE CONTRARY, IS BROUGHT ON RECORD IN THIS CASE. XII. GOING BY THE OECD GUIDANCE ALSO, IT IS NOT REA LLY POSSIBLE TO HOLD THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATURE OF 'PROVISION FOR SERVICES' AND NOT A SHAREHOLDER ACTIVITY WHICH ARE MUTUALLY EXCLUSIVE IN NATURE. IN THE LIGHT OF THESE DISCUSSIONS, IT IS OPINED AND SAID V IEW IS FULLY SUPPORTED BY THE OECD GUIDANCE IN THIS, THAT THE ISSUANCE OF CORPORATE GU ARANTEES, IN THE NATURE OF QUASI CAPITAL OR SHAREHOLDER ACTIVITY - AS IS THE UNCONTR OVERTED POSITION ON THE FACTS OF THIS CASE, DOES NOT AMOUNT TO A SERVICE IN WHICH RESPECT OF WHICH ARM'S LENGTH ADJUSTMENT CAN BE DONE. [PARA 41] XIII. IT IS THUS CLEAR THAT EVEN IF ONE ACCEPTS THE CONTENTION OF THE REVENUE THAT ISSUANCE OF A CORPORATE GUARANTEE AMOUNTS TO A 'PRO VISION FOR SERVICE', SUCH A SERVICE NEEDS TO BE RE-CHARACTERIZED TO BRING IT IN TUNE WI TH COMMERCIAL REALITY AS 'ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER'. NO BANK WOULD BE WIL LING TO ISSUE A CLEAN GUARANTEE, I.E., WITHOUT UNDERLYING ASSET, TO ASSESSEE'S SUBSI DIARIES WHEN THE BANKS ARE NOT WILLING TO EXTEND THOSE SUBSIDIARIES LOANS ON THE SAME TERM S AS WITHOUT A GUARANTEE. SUCH A GUARANTEE TRANSACTION CAN ONLY BE, AND IS, MOTIVATE D BY THE SHAREHOLDER, OR OWNERWISE CONSIDERATIONS. XIV. NO DOUBT, UNDER THE OECD GUIDANCE ON THE ISSUE , AN EXPLICIT SUPPORT, SUCH AS CORPORATE GUARANTEE, IS TO BE BENCHMARKED AND, FOR THAT PURPOSE, IT IS IN THE SERVICE CATEGORY BUT THAT OCCASION COMES ONLY WHEN IT IS CO VERED BY THE SCOPE OF 'INTERNATIONAL TRANSACTION' UNDER THE TRANSFER PRIC ING LEGISLATION OF RESPECTIVE JURISDICTION. THE EXPRESSION 'PROVISION FOR SERVICE S' IN ITS NORMAL OR LEGAL CONNOTATIONS, AS SEEN EARLIER, DOES NOT COVER ISSUANCE OF CORPORA TE GUARANTEES, EVEN THOUGH ONCE A CORPORATE GUARANTEE IS COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION', IT IS BENCHMARKED IN THE SERVICE SEGMENT. IN VIEW OF THE ABOVE, OECD GUIDELINES, AS A MATTER OF FACT, STRENGTHEN THE CLAIM OF THE ASSESSE E THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATURE OF QUASI CAPITAL OR SHAREHOLDER ACTIVITY AND, FOR THIS REASON ALONE, THE ISSUANCE OF THESE GUARAN TEES SHOULD BE EXCLUDED FROM THE ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 26 OF 43 SCOPE OF SERVICES AND THUS FROM THE SCOPE OF 'INTER NATIONAL TRANSACTIONS' UNDER SECTION 92B. XV. OF COURSE, ONCE A TRANSACTION IS HELD TO BE COV ERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION, WHETHER IN THE NATURE OF THE SHAREHOLDER ACTIVITY OR QUASI CAPITAL OR NOT, ALP DETERMINATION MUST DEPEND ON WH AT AN INDEPENDENT ENTERPRISE WOULD HAVE CHARGED FOR SUCH A TRANSACTION. IN THIS LIGHT OF THESE DISCUSSIONS, IT IS HELD THAT THE ISSUANCE OF CORPORATE GUARANTEES IN QUESTI ON WAS NOT IN THE NATURE OF 'PROVISION FOR SERVICES' AND THESE CORPORATE GUARAN TEES WERE REQUIRED TO BE TREATED AS SHAREHOLDER PARTICIPATION IN THE SUBSIDIARIES. [PAR A 43] XVI. AS FOR THE WORDS 'PROVISION FOR SERVICES' APPE ARING IN SECTION 92B, AND CONNOTATIONS THEREOF, THIS EXPRESSION, IN ITS NATUR AL CONNOTATIONS, IS RESTRICTED TO SERVICES RENDERED AND IT DOES NOT EXTEND TO THE BEN EFITS OF ACTIVITIES PER SE. WHETHER ONE LOOKS AT THE EXAMPLES GIVEN IN THE OECD MATERIA L OR EVEN IN EXPLANATION TO SECTION 92B, THE THRUST IS ON THE SERVICES LIKE MAR KET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SER VICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, AND SCIENTIFIC RESEARCH, LEGA L OR ACCOUNTING SERVICE OR COORDINATION SERVICES. AS A MATTER OF FACT, EVEN IN THE EXPLANATION TO SECTION 92B GUARANTEES HAVE BEEN GROUPED IN ITEM 'C' DEALING WI TH CAPITAL FINANCING, RATHER THAN IN ITEM 'D' WHICH SPECIFICALLY DEALS WITH 'PROVISION F OR SERVICES'. WHEN THE LEGISLATURE ITSELF DOES NOT GROUP 'GUARANTEES' IN THE 'PROVISIO N FOR SERVICES' AND INCLUDES IT IN THE 'CAPITAL FINANCING', IT IS REASONABLE TO PROCEED ON THE BASIS THAT ISSUANCE OF GUARANTEES IS NOT TO BE TREATED AS WITHIN THE SCOPE OF NORMAL CONNOTATIONS OF EXPRESSION 'PROVISION FOR SERVICES'. XVII. UNDER SECTION 92B, CORPORATE GUARANTEES CAN B E COVERED ONLY UNDER THE RESIDUARY HEAD I.E. 'ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE'. IT IS FOR THI S REASON THAT SECTION 92B, IN A WAY, EXPANDS THE SCOPE OF INTERNATIONAL TRANSACTION IN T HE SENSE THAT EVEN WHEN GUARANTEES ARE ISSUED AS A SHAREHOLDER ACTIVITY BUT COSTS ARE INCURRED FOR THE SAME OR, AS A MEASURE OF ABUNDANT CAUTION, RECOVERIES ARE MADE FO R THIS NON-CHARGEABLE ACTIVITY, THESE GUARANTEES WILL FALL IN THE RESIDUARY CLAUSE OF DEFINITION OF INTERNATIONAL TRANSACTIONS UNDER SECTION 92B. AS FOR THE REVENUES ARGUMENT THAT 'WHETHER THE SERVICE HAS CAUSED ANY EXTRA COST TO THE ASSESSEE S HOULD NOT BE THE DECIDING FACTOR TO DETERMINE WHETHER IT IS AN INTERNATIONAL AND THEN G IVES AN EXAMPLE OF BRAND ROYALTY TO MAKE HIS POINT. WHAT, IN THE PROCESS, HE OVERLOOKS IS THAT IS THAT SECTION 92B(1) SPECIFICALLY COVERS SALE OR LEASE OF TANGIBLE OR IN TANGIBLE PROPERTY'. THE EXPRESSION 'BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS O F SUCH ENTERPRISES' IS RELEVANT ONLY FOR RESIDUARY CLAUSE I.E. ANY OTHER SERVICES NOT SP ECIFICALLY COVERED BY SECTION 92B. XVIII. THERE IS NO DISPUTE THAT EXPLANATION TO SECT ION 92B STATES THAT IT IS MERELY CLARIFICATORY IN NATURE INASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROCEED ON THE BASIS THAT IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B. ACCO RDINGLY, THIS EXPLANATION IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISIONS, AND I N HARMONY WITH THE SCHEME OF THE PROVISIONS, UNDER SECTION 92B. UNDER THIS EXPLANATI ON, FIVE CATEGORIES OF TRANSACTIONS ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 27 OF 43 HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DE FINITION OF 'INTERNATIONAL TRANSACTIONS'. THE FIRST TWO CATEGORIES OF TRANSACT IONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNATIONAL TRANSACTI ONS' BY THE VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE P ROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY TRANSACTIONS 'IN THE NATURE OF PU RCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. XIX. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFIC ATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIONS OF TANGIBLE AND INTANGIB LE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROVISION OF SERVICES, INCLUDING PROVISI ON OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE ANYWAY COVERED IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES '. XX. THAT LEAVES THE TRIBUNAL WITH TWO CLAUSES IN TH E EXPLANATION TO SECTION 92B WHICH ARE NOT COVERED BY ANY OF THE THREE CATEGORIE S DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVERED BY SECTION 92B, NAMELY BO RROWING OR LENDING MONEY. THE REMAINING TWO ITEMS IN THE EXPLANATION TO SECTION 9 2B ARE SET OUT IN CLAUSE (C) AND (E) THERETO, DEALING WITH (A) CAPITAL FINANCING AND (B) BUSINESS RESTRUCTURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE OF DEFINITION IN INTERNATIONAL TRANSACTIONS, AS IN SECTION 92B(1), W HICH COVERS 'ANY OTHER TRANSACTION HAVING A BEARING ON PROFITS, INCOMES, LOSSES, OR AS SETS OF SUCH ENTERPRISES'. IT IS, THEREFORE, ESSENTIAL THAT IN ORDER TO BE COVERED BY CLAUSE (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRANSACTIONS SHOULD BE SUCH AS TO HAVE BEATING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE. XXI. IN OTHER WORDS, IN A SITUATION IN WHICH A TRAN SACTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE, THE T RANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. THIS ASP ECT OF THE MATTER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALIN G WITH RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUC H AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE O F THE FACT THAT IT (I.E. RESTRUCTURING OR REORGANIZATION) HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE AT THE TIME OF TRANSACTION OR ON A FUTURE DATE'. WHAT IS IMPLICIT IN THIS STATUTORY PROVISION IS THAT WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NON, THE MERE FACT THAT IMPACT IS NOT IMMEDIATE, BUT ON A FUTURE DATE, WOULD NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNATIONAL TRANSACTION'. I T IS ALSO IMPORTANT TO BEAR IN MIND THAT, AS IT APPEARS ON A PLAIN READING OF THE PROVI SION, THIS EXCLUSION CLAUSE IS NOT FOR 'CONTINGENT' IMPACT ON PROFIT, INCOME, LOSSES OR AS SETS BUT ON 'FUTURE' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 28 OF 43 XXII. THE IMPORTANT DISTINCTION BETWEEN THESE TWO C ATEGORIES IS THAT WHILE LATTER IS A CERTAINTY, AND ONLY ITS CRYSTALLIZATION MAY TAKE PL ACE ON A FUTURE DATE, THERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE INSTANT CASE I T IS AN UNDISPUTED POSITION THAT CORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO THE VARIOUS BANKS AND CRYSTALLIZATION OF LIABILITY UNDER THESE GUARANTEES, THOUGH A POSSIBIL ITY, IS NOT A CERTAINTY. IN VIEW OF THE DISCUSSIONS ABOVE, THE SCOPE OF THE CAPITAL FINANCI NG TRANSACTIONS, AS COULD BE COVERED UNDER EXPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING INTER ALI A ANY GUARANTEE, DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF B USINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR SUCH ENTER PRISE'. XXIII. THIS PRE-CONDITION ABOUT IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES IS A PRE-CONDITION EMBEDDED IN SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROFITS, INCOME, LOSSE S OR ASSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. THESE GUARANTEES DO NOT HAVE ANY IMP ACT ON INCOME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, I S ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTAN CE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSET S, AND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92 B(1). [PARA 44] XXIV. IN THE PRESENT CASE, AS ALREADY HELD THAT THE ISSUANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVITIES- AS WA S THE UNCONTROVERTED CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED IN TH E 'PROVISION FOR SERVICES' UNDER THE DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SEC TION 92B. TAKING NOTE OF THE INSERTION OF EXPLANATION TO SECTION 92B, THAT THE ISSUANCE OF CORPORATE GUARANTEES IS COVERED BY THE RESIDUARY CLAUSE OF THE DEFINITION UNDER SECTIO N 92B OF THE ACT BUT SINCE SUCH ISSUANCE OF CORPORATE GUARANTEES, ON THE FACTS OF T HE PRESENT CASE, DID NOT HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS', IT DID NOT CONSTITUTE AN INTERNATIONAL TRANSACTION, UNDER SECTION 92B, IN RESPECT OF WHICH AN ARM'S LENGTH PRICE ADJUSTMENT COULD BE MADE. IN THIS VIEW OF THE MATTER, AND FOR BOTH THESE INDEPENDENT REASONS, THE IMPUGNED ALP ADJUSTMENT IS SET ASIDE. [PARA 48] 52. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS S O EXPRESSED BY THE COORDINATE BENCH. IN THE CIRCUMSTANCES, WE SEE NO REASONS TO TAKE ANY REVIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE COORDINATE BENCHES. IT CANNOT BE OPEN TO US TO REVISIT THE CONCLUSIONS ARRIVED AT BY THE COORDINATE BENCHES, BUT THEN THIS ISSUE IS A N OPEN ISSUE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT AND OF COURSE, WHATEVER W E SAY IS AND SHALL ALWAYS REMAIN SUBJECT TO WHAT HONBLE COURTS ABOVE DECIDE ON THE ISSUE. A S FOR THE OBSERVATIONS OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDEN CE OF NOT INCURRING ANY COSTS, THIS OBSERVATION IS INCORRECT INASMUCH AS NONE CAN BE EX PECTED TO PROVE A NEGATIVE. THE ONUS OF DEMONSTRATING THAT THE COSTS HAVE BEEN INCURRED CAN ONLY BE ON THE REVENUE AUTHORITIES, AND ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 29 OF 43 THAT ONUS HAS NOT BEEN DISCHARGED. EVEN DURING THE COURSE OF HEARING WHEN IT WAS ASKED AS TO WHAT ARE THE COSTS INCURRED BY THE ASSESSEE, LEARNE D DEPARTMENTAL REPRESENTATIVE DID NOT HAVE ANYTHING TO SAY. RESPECTFULLY FOLLOWING THE VIEWS O F THE COORDINATE BENCHES ON THE ISSUE, IN THE CASE OF MICRO INK (SUPRA), WE HOLD THAT ISSUANC E OF GUARANTEES, WITHOUT INCURRING ANY SPECIFIC COSTS, DOES NOT CONSTITUTE AN INTERNATIONA L TRANSACTION, AND, ACCORDINGLY, NO ARMS LENGTH PRICE ADJUSTMENT CAN BE MADE IN RESPECT OF I SSUANCE OF CORPORATE GUARANTEES. ONCE WE HOLD SO, THE ALP ADJUSTMENT SUSTAINED BY THE CIT(A) MUST STAND DELETED. GRIEVANCE OF THE ASSESSING OFFICER AGAINST THE PARTIAL RELIEF GRANTE D BY THE CIT(A), IN VIEW OF THE FINDINGS ABOVE, BECOMES INFRUCTUOUS AND IS DISMISSED AS SUCH . 53. GROUND NO. 1 OF THE ASSESSEE IS ALLOWED AND GRO UND NO. 1 OF THE ASSESSING OFFICERS APPEAL IS DISMISSED AS INFRUCTUOUS. 54. IN GROUND NO. 2, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCES: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED C.I.T. (APPEALS) ERRED IN FULLY DELETING THE DISALLOWANCE OF PRIOR P ERIOD EXPENSES OF RS.32,63,473 WHICH CRYSTALLIZED DURING THE PRESENT ASSESSMENT YE AR, AND DIRECTING THE ASSESSING OFFICER TO SET OFF THE AFORESAID PRIOR PERIOD EXPEN SES AGAINST PRIOR PERIOD INCOME OF RS.31,94,712, AFTER VERIFICATION AND TO RESTRICT TH E DISALLOWANCE TO RS.68,761 IF THE ALTERNATIVE CONTENTION OF THE APPELLANT-COMPANY REG ARDING AFORESAID SETTING OFF IS FOUND TO BE CORRECT. 55. WE FIND THAT THIS ISSUE IS COVERED, IN FAVOUR O F THE ASSESSEE IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2006-07 & 2007-08, BY A COORDI NATE BENCH'S DECISION DATED 1 ST JANUARY 2016, WHICH WAS ALSO FORTIFIED BY THE JUDGMENT OF H ONBLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NO. 566 OF 2016. IN VIEW OF THESE DISCUSSION S, AND RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF THE COORDINATE BENCH (SUPRA), WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANCE WITH RESPECT TO PR IOR PERIOD EXPENSES. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 56. GROUND NO. 2 IS THUS ALLOWED. 57. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCES: 3. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN UPHOLDING PARTIAL DISALLOWANCE U /S. 14A INSTEAD OF DELETING ENTIRE DISALLOWANCE MADE BY AO AS APPELLANT HAD A S EPARATE 'INVESTMENT DIVISION' FOR WHICH SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED AND AUDITED, COPIES OF SUCH ACCOUNTS WERE PROVIDED TO ENTIRE AO AND APPELLANT H AD OPTED TO SUO MOTO DISALLOWANCE THE ENTITLE EXPENDITURE OF THAT DIVISI ON VIZ RS. 1,56,62,600 U/S. 14A WHILE COMPUTING TOTAL INCOME AND AO HAS NOT GIVEN A NY COGENT REASONS FOR NOT SATISFYING WITH THE CORRECTIONS OF CLAIM OF APPELLA NT AS PROVIDE IN SECTION 14A(2). (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED C.I.T. (APPEALS) ERRED IN NOT DELETING PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE U/S. 14A OF THE ACT ON THE GROUND THAT INTEREST FREE FUNDS AVAI LABLE WITH APPELLANT COMPANY IN ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 30 OF 43 FORM OF SHARE CAPITAL, RESERVES & SURPLUSES AND OTH ER FUNDS ARE FAR IN EXCESS OF INVESTMENTS YIELDINGLY TAX FREE INCOME. (C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED C.I.T. (APPEALS) ERRED IN UPHOLDING DISALLOWANCE OF ADMINISTRATIVE E XPENDITURE OF RS.5,38,47,568 MADE BY THE ASSESSING OFFICER U/S.14A OF THE I.T. A CT BY APPLYING RULE 8D(2)(III) OF THE I.T. RULES 58. LEARNED REPRESENTATIVES SUBMIT THAT AN IDENTICA L ISSUE HAS COME UP FOR ADJUDICATION BEFORE US IN THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR, I.E., 2008-09, AND WHATEVER WE DECIDE IN THAT ASSESSMENT YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. 59. WE FIND THAT, WHILE DEALING WITH IDENTICAL GRIE VANCE OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008-09, AND FOR THE REASONS SET OU T EARLIER IN THIS ORDER VIDE PARAGRAPH NO.25, WE HAVE UPHELD THE CONCLUSIONS ARRIVED AT BY THE LD. CIT(A). IN ANY CASE, THERE IS NO DISPUTE THAT THE INTEREST FREE FUNDS AVAILABLE TO T HE ASSESSEE WERE FAR MORE THAN THE FUNDS INVESTED IN SECURITIES YIELDING TAX EXEMPT INCOME. ON THESE FACTS, IN THE LIGHT OF THE BINDING JUDICIAL PRECEDENTS, ONE HAS TO PROCEED ON THE BASI S THAT SUCH INTEREST FREE FUNDS IN MAKING THESE INVESTMENTS, AND NO PART OF INTEREST CAN THUS BE DISALLOWED UNDER SECTION 14A READ WITH RULE 8D. WE SEE NO REASONS TO TAKE ANY OTHER VIEW O F THE MATTER FOR THIS ASSESSMENT YEAR AS WELL. RESPECTFULLY FOLLOWING THE VIEW SO TAKEN, WE APPROVE THE STAND OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 60. GROUND NO. 3 IS THUS DISMISSED. 61. IN GROUND NO. 4, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED C.I.T. (APPEALS) ERRED IN SUSTAINING DISALLOWANCE OF OTHER BALANCES OF RS.5,02,181 BEING ADVANCES FOR BUSINESS PURPOSES TO SUPPLIERS, WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE, IN SPITE OF THE FACT THAT SUCH WRITI NG OFF WAS IN THE NATURE OF LEGITIMATE BUSINESS LOSS ALLOWABLE U/S.28 OF THE I. T. ACT. 62. SO FAR AS THIS GROUND IS CONCERNED, IT WAS MADE FOR THE SHORT REASON THAT NO EVIDENCE WAS FURNISHED TO DEMONSTRATE THAT THE ADVANCES WERE MADE DURING THE COURSE OF BUSINESS. EVEN BEFORE US NO SUCH EVIDENCES ARE FURNISHED. IN THIS VIEW OF THE MATTER, WE SEE NO REASON TO INTERFERE IN THE FINDINGS OF THE AUTHORITIES BEL OW ON THIS POINT. GROUND NO.4 IS THUS DISMISSED. 63. IN GROUND NO. 5, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCES: 5 (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN SUSTAINING DISALLOWANCE OF DEDUC TION OF A SUM OF RS.82,02,615 BEING 'MARK TO MARKET' LOSSES IN RESPECT OF APPELLA NT-COMPANY'S COMMODITY AND FOREIGN CURRENCY DERIVATIVE CONTRACTS FOR HEDGING, WHICH WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 31 OF 43 (B) WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN REJECTI NG THE ALTERNATIVE PLEA OF THE APPELLANT-COMPANY TO RESTRICT THE AFORESAID DISALLO WANCE BY SETTING OFF THE SUM OF RS.73,06,199, BEING THE PRECEDING YEAR'S PROVISION FOR SIMILAR LOSSES DISALLOWED BY THE ASSESSING OFFICER AND REVERSED BY THE APPELLANT -COMPANY IN THE BOOKS OF ACCOUNT DURING THE PREVIOUS YEAR RELEVANT TO THE PR ESENT ASSESSMENT YEAR. 64. LEARNED REPRESENTATIVES SUBMIT THAT AN IDENTICA L ISSUE HAS COME UP FOR ADJUDICATION BEFORE US IN THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR, I.E., 2008-09, AND WHATEVER WE DECIDE IN THAT ASSESSMENT YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. 65. WE FIND THAT, WHILE DEALING WITH IDENTICAL GRIE VANCE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09, AND FOR THE REASONS SET OUT EARLIER I N THIS ORDER VIDE PARAGRAPH NOS.12-15, WE HAVE UPHELD THE PLEA OF THE ASSESSEE. WE SEE NO REA SONS TO TAKE ANY OTHER VIEW OF THE MATTER FOR THIS ASSESSMENT YEAR AS WELL. RESPECTFULLY FOLL OWING THE VIEW SO TAKEN, WE UPHOLD THE PLEA OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANC E. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 66. GROUND NO 5 IS THUS ALLOWED. 67. IN GROUND NO. 6, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED C.I.T. (APPEALS) ERRED IN SUSTAINING DISALLOWANCE OF INTEREST EXPEND ITURE OF RS.1,93,55,168, MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE I.T. ACT. 68. SO FAR AS THIS GRIEVANCE RAISED BY THE ASSESSEE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID INTEREST AMOUNTS AGGREGATING TO RS.1,93,55,168/- IN RESPECT OF BORROWINGS FROM CERTAIN FOREIGN BANKS VIZ. (I) CITI BANK, MANAMA (RS.46,33,308), (II) ABN AMRO BANK, SINGAPORE (RS.44,86,482) AND (III) STAND ARD CHARTERED BANK, SINGAPORE (RS.1,02,35,378). THE ASSESSING OFFICER ACCORDINGL Y REQUIRED THE ASSESSEE TO SHOW-CAUSE AS TO WHY HE DID NOT DEDUCT TAX AT SOURCE FROM THESE P AYMENTS. IT WAS EXPLAINED BY THE ASSESSEE THAT THESE AMOUNTS WERE PAID THROUGH INDIAN BRANCH OF THE SAID INTERNATIONAL BANKS IN INDIAN RUPEES AND ACCORDINGLY THE REQUIREMENTS OF TAX DEDU CTION AT SOURCE UNDER SECTION 195 DID NOT COME INTO PLAY. THE ASSESSING OFFICER, HOWEVER, DI D NOT ACCEPT THE SAID EXPLANATION. HE WAS OF THE VIEW THAT SINCE THE PAYMENT WAS MADE TO THE FOREIGN COMPANIES, SECTION 195 CAME INTO PLAY. HE ALSO NOTICED THAT SECTION 194A WAS APPLIC ABLE ONLY WITH RESPECT TO PAYMENT TO RESIDENTS AND WILL NOT ACCORDINGLY COME TO THE RESC UE OF THE ASSESSEE. IT WAS IN THIS BACKDROP THE DISALLOWANCE OF RS.1,93,55,168/- WAS MADE BY IN VOKING SECTION 40(A)(I). THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), BUT WITHOUT ANY SUCCESS. LEARNED CIT(A), IN HIS BRIEF ORDER, OBSERVED AS FOLLOWS:- 11.3 HAVING CONSIDERED THE FACTS OF THE MATTER, I A M NOT INCLINED TO ACCEPT THE CONTENTIONS OF THE AR. AS OBSERVED BY THE AO , PAY MENT OF INTEREST TO FOREIGN BANKS OR THEIR BRANCHES IN INDIA IS GOVERNED BY SEC . 195 [SINCE PAYEES ARE NON- RESIDENTS]. NO CERTIFICATE AS ENVISAGED UNDER SEC. 195(3) FOR NON-DEDUCTION OF TAX ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 32 OF 43 HAS BEEN FURNISHED BY THE APPELLANT. THE CONTENTIO NS OF THE AR ARE DEVOID OF MERIT. IMPUGNED DISALLOWANCE IS UPHELD. THIS GROUND OF APP EAL IS DISMISSED. 69. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 70. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 71. WE FIND THAT THE PAYMENT HAS INDEED BEEN MADE T O A NON-RESIDENT AND NO TAX HAS BEEN DEDUCTED AT SOURCE. THE PAYMENT BEING IN THE NATURE OF INTEREST INCOME WHICH IS SEPARATELY COVERED UNDER THE RESPECTIVE TAX TREATIES AND, BEYO ND ANY DISPUTE OR CONTROVERSY, THESE PAYMENTS HAVE AN ELEMENT OF INCOME TAXABLE IN INDIA . AS REGARDS LEARNED COUNSELS CONTENTION THAT THE PAYMENT HAVING BEEN MADE TO A B ANK WHICH ARE SPECIFICALLY EXCLUDED FROM THE SCOPE OF TAX WITHHOLDING OBLIGATIONS UNDER SECTION 194A, THIS ARGUMENT OVERLOOKS THE FACT THAT THIS EXCLUSION RELATES ONLY TO A RESI DENT TAXPAYER AND THE RECIPIENTS IN THIS CASE ARE NON RESIDENTS. IN OUR CONSIDERED VIEW, THE AUTH ORITIES BELOW WERE RIGHT IN HOLDING THAT THE PAYMENTS WERE MADE TO THE FOREIGN COMPANIES, AND, T HEREFORE, SECTION 195 CAME INTO PLAY, AND THAT SECTION 194A WAS APPLICABLE ONLY WITH RESP ECT TO PAYMENT TO RESIDENTS AND WILL NOT ACCORDINGLY COME TO THE RESCUE OF THE ASSESSEE. WE UPHOLD THE REASONING OF THE AUTHORITIES BELOW, AND DECLINE TO INTERFERE IN THE MATTER. 72. GROUND NO.6 IS DISMISSED. 73. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 2009-10 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 74. WE NOW TAKE UP APPEAL OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2009-10. 75. GROUND NO. 1 IS ALREADY DEALT WITH, IN THE COUR SE OF DEALING WITH THE APPEAL FILED BY THE ASSESSEE EARLIER IN THIS ORDER, AND WE NEED NOT REPEAT OUR FINDINGS THEREON. SUFFICE TO SAY, FOR THE REASONS SET OUT EARLIER, THIS GROUND IS DIS MISSED. 76. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SETTING ASIDE THE ISSUE OF PRIOR PERIOD EXPENDITURE AMOUNTING TO RS.32,53,473/-. 77. THIS ISSUE HAS ALREADY BEEN DEALT WITH BY US WH ILE ADJUDICATING GROUND NO. 2 OF ASSESSEES APPEAL FOR AY 2009-10. THIS ISSUE IS AL SO COVERED BY A COORDINATE BENCH DECISION OF THIS TRIBUNAL, IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2006-07, IN ITA NO 1859/AHD/2011. THE VIEW SO TAKEN BY THE COORDINATE BENCH HAS BEEN CONFIRMED BY HONBLE JURISDICTIONAL HIGH COURT AS WELL. WE SEE NO REASON S TO TAKE A DIFFERENT VIEW OF THE MATER IN THIS YEAR. WE, THEREFORE, RESPECTFULLY FOLLOWING T HE SAME, REJECT THE PLEA OF THE ASSESSING OFFICER. GROUND NO. 2 IS THUS DISMISSED. 78. IN GROUND NO. 3, THE ASSESSING OFFICER HAS RAIS ED FOLLOWING GRIEVANCE: ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 33 OF 43 (3) THE ID. CIT(A) HAS SUBSTANTIALLY ERRED IN DIREC TING THE AO TO VERIFY THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.11,04,23 ,824/- UNDER RULE 8D(2)(II) DESPITE THE FACT THAT THE AO IN HIS ORDER HAD ALREA DY DEDUCED INTEREST OF SPECIFIC BORROWINGS WHILE WORKING OUT THE SAID DISALLOWANCE. 79. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SQUARELY COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO-ORDINATE BENCH DECISION DATED 1 ST JANUARY 2016 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08. A COPY OF THE SAID DECISION WAS PLACED BEFORE US AS WELL. 80. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. IN ANY CASE, THERE IS NO DISPUTE THAT THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE WERE FAR MORE THAN THE FUNDS INVESTED IN S ECURITIES YIELDING TAX EXEMPT INCOME. ON THESE FACTS, IN THE LIGHT OF THE BINDING JUDICIAL P RECEDENTS, ONE HAS TO PROCEED ON THE BASIS THAT SUCH INTEREST FREE FUNDS IN MAKING THESE INVESTMENT S, AND NO PART OF INTEREST CAN THUS BE DISALLOWED UNDER SECTION 14A READ WITH RULE 8D. RES PECTFULLY FOLLOWING THE SAME, WE CONFIRM THE RELIEF GRANTED BY THE CIT(A) AND DECLIN E TO INTERFERE IN THE MATTER. 81. GROUND NO. 3 IS THUS DISMISSED. 82. IN GROUND NO. 4, THE ASSESSING OFFICER HAS RAIS ED FOLLOWING GRIEVANCE: (4) THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.7,27,036/- BEING THE DEPRECIATION CLAIMED BY THE ASSESSEE ON SHARES HELD BY IT IN RUPARELIA THEATRES PVT. LTD. SHARES ARE NOT ASSETS ON WHICH DEPRECIATION CA N BE ALLOWED U/S 32 R.W. DEPRECIATION SCHEDULE. 83. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SQUARELY COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO-ORDINATE BENCH DECISION DATED 1 ST JANUARY 2016 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08. A COPY OF THE SAID DECISION WAS PLACED BEFORE US AS WELL. 84. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE RELIEF GRANTED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 85. GROUND NO. 4 IS THUS DISMISSED. 86. IN GROUND NO. 5, THE ASSESSING OFFICER HAS RAIS ED FOLLOWING GRIEVANCE: (5) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWANCE OF RS.17,33,265/- U/S 36( 1)(III) ON ACCOUNT OF INTEREST ON BORROWINGS. 87. LEARNED REPRESENTATIVES SUBMIT THAT AN IDENTICA L ISSUE HAS COME UP FOR ADJUDICATION BEFORE US IN THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR, I.E., 2008-09, AND WHATEVER WE DECIDE IN THAT ASSESSMENT YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 34 OF 43 88. WE FIND THAT, WHILE DEALING WITH IDENTICAL GRIE VANCE OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008-09, AND FOR THE REASONS SET OU T EARLIER IN THIS ORDER VIDE PARAGRAPH NO.30, WE HAVE UPHELD THE CONCLUSIONS ARRIVED AT BY THE LD. CIT(A). WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER FOR THIS ASSESSME NT YEAR AS WELL. RESPECTFULLY FOLLOWING THE VIEW SO TAKEN, WE APPROVE THE STAND OF THE CIT(A) A ND DECLINE TO INTERFERE IN THE MATTER. 89. GROUND NO. 5 IS THUS DISMISSED. 90. IN GROUND NO. 6, THE ASSESSING OFFICER HAS RAIS ED FOLLOWING GRIEVANCE: (6) THE LD. CIT(A) HAS ERRED IN DELETING THE BUSINE SS LOSS CLAIMED AS BAD DEBTS OF RS.1,33,43,000/- OUT OF TOTAL DISALLOWANCE OF RS.1, 38,45,181/- DESPITE THE FACT THAT THE ASSESSEE HAS NOT BEEN OFFERED THIS AMOUNT TO TA X IN EARLIER YEARS OR IN THE CURRENT YEAR AND FAIL TO SATISFY THE CONDITION LAID DOWN IN SECTION 36(2) OF THE ACT. 91. LEARNED REPRESENTATIVES SUBMIT THAT AN IDENTICA L ISSUE HAS COME UP FOR ADJUDICATION BEFORE US IN THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR, I.E., 2008-09, AND WHATEVER WE DECIDE IN THAT ASSESSMENT YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. 92. WE FIND THAT, WHILE DEALING WITH IDENTICAL GRIE VANCE OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008-09, AND FOR THE REASONS SET OU T EARLIER IN THIS ORDER VIDE PARAGRAPH NO.8, WE HAVE UPHELD THE CONCLUSIONS ARRIVED AT BY THE LD . CIT(A). WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER FOR THIS ASSESSMENT YEAR A S WELL. RESPECTFULLY FOLLOWING THE VIEW SO TAKEN, WE APPROVE THE STAND OF THE CIT(A) AND DECLI NE TO INTERFERE IN THE MATTER. 93. GROUND NO. 6 IS THUS DISMISSED. 94. IN GROUND NO. 7, THE ASSESSING OFFICER HAS RAIS ED FOLLOWING GRIEVANCE: (7) THE LD. CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS.58,31,457/- ON ACCOUNT OF LOSS FROM FOREIGN CURRENCY SWAPS BY RELY ING ON THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF ACIT VS. HEAVY ME TAL & TUBES LTD., DESPITE THE FACT THAT THE CLAIM OF THE ASSESSEE IS IN THE NATUR E OF SPECULATIVE LOSS AND NOT ALLOWABLE AS BUSINESS EXPENDITURE. 95. SO FAR AS THIS GROUND OF APPEAL IS CONCERNED, T HE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS 58,31,457 IN RESPECT OF CURRENCY SWAP LOSSES. WHEN HE PROBED THE MATTER, IT WAS EXPLAINED BY THE ASSES SEE THAT AS AN EXPORT HOUSE, THE ASSESSEE HAS TO MAKE FOREIGN CURRENCY WORKING CAPITAL LOANS, AND AS A PART OF THE TERMS OF SANCTION OF SUCH LOANS, THE BANKERS REQUIRE THE ASSESSEE TO ENT ER INTO CURRENCY SWAP ARRANGEMENT FOR THESE FOREIGN CURRENCY BORROWINGS. THE ASSESSING OFFICER WAS, HOWEVER, OF THE VIEW THAT THESE TRANSACTIONS ARE IN THE NATURE OF SPECULATIVE TRANS ACTIONS INASMUCH AS THESE ARE DERIVATIVE TRANSACTIONS AND NOT SPECIFICALLY COVERED BY THE EX CLUSIONS SET OUT IN SECTION 43(5)(D). THE LOSS WAS THUS HELD TO BE OF THE NATURE WHICH CANNOT BE ALLOWED AS DEDUCTION IN COMPUTATION OF BUSINESS INCOME. THE DEDUCTION WAS, ON THE BASIS OF THIS LINE OF REASONING, DECLINED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT(A) WHO DELETED THE DISALLOWANCE BY RESPECTFULLY FOLLOWING A DECISION O F THIS TRIBUNAL IN THE VASE OF ACIT VS ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 35 OF 43 HEAVY METAL & TUBES LIMITED (ITA NO. 1951/AHD/2011; ORDER DATED 30 TH JUNE 2014). THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRA NTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 96. HAVING HEARD THE RIVAL CONTENTIONS, AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT, AS RIGHTLY NOTED BY THE CIT(A), THE ISSU E IS COVERED, IN FAVOUR OF THE ASSESSEE, BY DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNA L, INCLUDING IN THE CASE OF CADILA PHARMACEUTICALS LTD VS ACIT [85 TAXMANN.COM 354 (AH D)] WHEREIN THE COORDINATE BENCH HAS, INTER ALIA, FOLLOWED AS FOLLOWS: .. THE ASSESSEE'S CASE THROUGHOUT HAS BEEN THA T IT HAD ENTERED INTO A FOREX CONTRACT WITH THE STATE BANK OF INDIA ON THE BASIS OF ITS FOREIGN CURRENCY EXPOSURE IN IMPORT/EXPORT TRANSACTIONS WITH PUBLIC SECTOR BANKS TO COVER FLUCTUATION RISK UPTO RS. 200CRORES. ONE OF THE BANK NAMELY BANK OF BARODA IS STATED TO HAVE ISSUED A CERTIFICATE DATED 12.02.2015 CLAIMING REALIZATION O F RS. 123,71,57,417/- WHICH COULD BE REALIZED TO THE TUNE OF RS. 111,72,18,092/- AS O N 31.03.2011. ITS SBI CONTRACT ENABLED IT TO BOOK LOSSES AGAINST THE ABOVE UNREALI ZED BILLS. LOWER AUTHORITIES AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE DO NOT REBUT THIS FACTUAL POSITION. THE ASSESSEE CLAIMS TO HAVE BEEN INTER ALIA RECORDING I TS SALES TO OVERSEAS CLIENTS ON THE DAY OF TRANSACTION IN ITS BOOKS IN INDIAN CURRENCY AT THE RATE PREVAILING ON THE VERY DAY, IT WOULD LODGE CONVERSION CLAIM UPON PAYMENT O F ITS CONSIDERATION MONEY BY SAID CUSTOMERS, THIS CURRENCY SETTLEMENT TOOK TIME AFTER LODGMENT TO BE REALIZED RESULTING IN FLUCTUATION LOSS AS IS THE CASE HEREIN . WE NOTICE IN THIS BACKDROP THAT HON'BLE JURISDICTIONAL HIGH COURT'S DECISION IN CIT V. FRIENDS & FRIENDS SHIPPING (P.) LTD. [2013] 35 TAXMANN.COM 553/217 TAXMAN 267 (GUJ. ) HOLDS LOSSES ARISING FROM SIMILAR FOREIGN EXCHANGE CONTRACTS TO BE BUSINESS L OSSES THAN SPECULATIVE ONES. THEIR LORDSHIPS CONCLUDE THAT SUCH EXCHANGE TRANSACTIONS ARE HEDGING TRANSACTIONS INSTEAD OF BEING SPECULATIVE TRANSACTIONS IN NATURE. NEXT COME S HON'BLE BOMBAY HIGH COURT'S DECISION IN CIT V. D. CHETAN & CO. [2016] 75 TAXMAN N.COM 300/243 TAXMAN 356/[2017] 390 ITR 36 (BOM.) HOLDING THAT FORWARD C ONTRACTS IN THE NATURE OF HEDGING TRANSACTIONS IN COURSE OF NORMAL IMPORT EXPORT ACTI VITIES TO COVER UP LOSSES ON ACCOUNT OF FOREIGN EXCHANGE VALUATION DIFFERENCE RESULTS IN BUSINESS LOSSES AND NOT SPECULATIVE ONE. WE FIND THAT HON'BLE JURISDICTIONAL HIGH COURT 'S DECISION IN PANKAJ OIL MILLS V. CIT [1978] 115 ITR 824 (GUJ) (FULL BENCH) ALSO HOLD S INTER ALIA THAT HEDGING CONTRACTS; IN ORDER TO BE OUT OF SPECULATIVE TRANSA CTIONS, MUST BE IN RESPECT OF RAW MATERIALS ONLY IN MANUFACTURERS' CASES THOUGH THEY COULD BE BOTH WITH REGARD TO SALES AND PURCHASES, SUCH HEDGING CONTRACTS NEED NOT SUCC EED THE CONTRACT FOR SALE AND ACTUAL DELIVERY OF GOODS MANUFACTURED, BUT THE LATT ER COULD BE SUBSEQUENTLY ENTERED INTO WITHIN REASONABLE TIME NOT EXCEEDING THE RELEV ANT ASSESSMENT YEAR IN NORMAL CIRCUMSTANCES AND SUCH TRANSACTIONS SHOULD NOT EXCE ED THE TOTAL STOCK OF THE RAW MATERIAL OR MERCHANDISE ON HAND INCLUDING EXISTING STOCKS AS WELL AS THAT ACQUIRED UNDER THE FIRMS CONTRACT OF PURCHASES IN ORDER TO B E GENUINE AND VALID HEDGING CONTRACT OF SALES; RESPECTIVELY. LEARNED DEPARTMENT AL REPRESENTATIVE FAILS TO INDICATE ANY DISTINCTION THEREIN VIS--VIS THOSE INVOLVED IN THE INSTANT ADJUDICATION. WE THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE TH E IMPUGNED DISALLOWANCE. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 36 OF 43 97. RESPECTFULLY FOLLOWING THE BINDING JUDICIAL PRE CEDENTS, WE CONFIRM THE CONCLUSIONS ARRIVED AT BY THE CIT(A), AND DECLINE TO INTERFERE IN THE MATTER. 98. GROUND NO. 7 IS THUS DISMISSED. 99. IN THE RESULT, THE APPEAL OF THE ASSESSING OFFI CER FOR THE ASSESSMENT YEAR 2009-10 IS DISMISSED IN THE TERMS INDICATED ABOVE. 100. WE NOW TAKE UP CROSS APPEALS FOR THE ASSESSMEN T YEAR 2010-11 WHICH ARE DIRECTED AGAINST THE ORDER DATED 5 TH JUNE 2015 PASSED BY THE CIT(A) IN THE MATTER OF AS SESSMENT UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1 961, FOR THE ASSESSMENT YEAR 2010-11. 101. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HA S RAISED THE FOLLOWING GRIEVANCES: 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN PARTLY SUSTAINING THE UPWARD ADJ USTMENT OF RS.4,36,97,230 MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE TRANSFER PRICING OFFICER'S ORDER DATED 28.1.2014 PASSED U/S. 92CA(3) OF THE I.T. ACT, ON THE ASSUMPTION THAT THE APPELLANT-COMPANY SHOULD HAVE CHARGED GUARANTEE COMMISSION FROM ITS WHOLLY OWNED FOREIGN SUBSIDIARIES IN CONSIDERATION OF PROVIDING CORPORATE GUARANTEES TO THE LENDERS PROVIDING BORROWINGS TO THE SAID SUBSIDIARIES. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED C.I.T. [APPEALS) ERRED IN CONFIRMING THE ABOVE MENTIONED U PWARD ADJUSTMENT OF RS.4,36,97,230 TO THE EXTENT OF RS.2,88,27,000/- BY ADOPTING AN ARBITRARY RATE OF 2% OF THE TOTAL GUARANTEE AMOUNT AS AGAINST THE RATE OF 2.98% ADOPTED BY THE TRANSFER PRICING OFFICER. (C) WITHOUT PREJUDICE TO THE ABOVE, ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN ADOPTIN G EXCESSIVE AND UNREASONABLE RATE OF GUARANTEE COMMISSION AT 2%, CO MPLETELY IGNORING THE COMPARABLE CASE OF EVEREST KANTO CYLINDER CITED BEF ORE HIM BY THE APPELLANT-COMPANY WHEREIN THE HON'BLE MUMBAI ITAT H AD CONSIDERED A RATE OF 0.5% AS REASONABLE. (D) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED C.I.T. (APPEALS) FURTHER ERRED IN REJECTING THE FACTUAL CL AIM MADE BY THE APPELLANT- COMPANY AND SUPPORTED BY DOCUMENTARY EVIDENCE, THAT IT HAD OBTAINED GUARANTEE FROM STATE BANK OF INDIA, IN CONNECTION W ITH APPELLANT- COMPANY'S OPERATING CONTRACT WITH KARNATAKA POWER C ORPORATION AT A ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 37 OF 43 GUARANTEE FEE OF 0.25%, AND THEREFORE, WITHOUT PREJ UDICE TO THE CLAIM THAT NO ADJUSTMENT CAN BE MADE U/S.92CA(3) OF THE I.T. ACT, AT THE MOST SIMILAR RATE OF 0.25% SHOULD BE ADOPTED FOR THE PURPOSE OF BENCH MARKING IN THE CASE OF THE APPELLANT-COMPANY. 102. IN A RELATED GRIEVANCE, RAISED BY THE ASSESSIN G OFFICER AS FIRST GROUND OF APPEAL IN HIS APPEAL FOR AY 2010-11 WHICH WE WILL TAKE UP AT TH IS STAGE, THE ISSUE RAISED IS AS FOLLOWS:- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION MADE OF RS.4,36,97,230/- ON ACCOUNT OF UPWARD REVISION M ADE BY TPO ON ACCOUNT OF FREE OF CHARGE CORPORATE GUARANTEE GIVEN TO ASSOCIA TED ENTERPRISES. 103. SO FAR AS THIS GRIEVANCE IS CONCERNED, WE FIND THAT THE ISSUE HAS ALREADY BEEN ADJUDICATED BY US FOR THE IMMEDIATELY PRECEDING YEA R 2009-10 FOR THE REASONS SET OUT EARLIER IN THIS ORDER VIDE PARAGRAPH NO.52, WHEREBY WE HAVE UPHELD THE CONCLUSIONS ARRIVED AT BY THE LD. CIT(A). WE SEE NO REASONS TO TAKE ANY OTHER VI EW OF THE MATTER FOR THIS ASSESSMENT YEAR AS WELL. IN ANY CASE, THERE IS NO MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THIS YEAR WHICH COULD CHANGE THE SAID STAND. RESPEC TFULLY FOLLOWING THE VIEW SO TAKEN, WE APPROVE THE STAND OF THE CIT(A) AND DECLINE TO INTE RFERE IN THE MATTER. 104. GROUND NO. 1 OF THE ASSESSEE IS ACCORDINGLY AL LOWED AND GROUND NO. 1 OF THE ASSESSING OFFICERS APPEAL IS DISMISSED AS INFRUCTUOUS AS IND ICATED ABOVE. 105. IN GROUND NO. 2, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN UPHOLDING THE UPWARD ADJUSTMENT OF RS.15,12 ,800 MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE TRANSFER PRICING OFFICE R'S ORDER DATED 28.1.2014 PASSED U/S.92CA(3) OF THE IT. ACT, DETERMINING THE A.L.P. IN RESPECT OF TRANSACTION OF EXPORT OF MAIZE. 106. THE SHORT REASON FOR WHICH THE IMPUGNED ADJUST MENT WAS MADE WAS THAT, OUT OF 2 CUP VARIABLES GIVEN BY THE ASSESSEE IN SUPPORT OF I TS BENCHMARKING, QUOTATIONS FROM INDEPENDENT ENTERPRISES WAS REJECTED AS VALID CUP I NPUT. THIS QUOTATION WAS FROM U KYU FAMILY TRADING COMPANY. THE STAND OF THE TPO WAS TH AT THERE WAS NO INDEPENDENT TRANSACTION AND IT IS ONLY ACTUAL PRICE IN AN INDEP ENDENT TRANSACTION WHICH COULD BE TAKEN AS A VALID INPUT FOR EXTERNAL CUP METHOD. WHEN THE MATTE R TRAVELLED IN APPEAL BEFORE THE CIT(A), RELIANCE WAS PLACED ON RULE 10BA, INSERTED WITH EFF ECT FROM 1 ST APRIL 2012, AND IT WAS CONTENDED THAT QUOTATIONS WERE ADMISSIBLE AS COMPAR ABLE FOR CUP ANALYSIS. IT WAS ALSO NOTED THAT SINCE THE VARIATION IN THE ONLY CUP INPUT GIVE N BY THE ASSESSEE AND THE TRANSACTION VALUE WAS MORE THAN 5%, THE ALP ADJUSTMENT WAS RIGHTLY MA DE BY THE TPO. IT WAS ALSO OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT AE HAD SOLD THE GOODS TO THE THIRD PARTY COULD NOT BE VERIFIED BY EXAMINING BOOKS AND ACCOUNTS OF THE ASS ESSEE. THE ALP ADJUSTMENT WAS THUS CONFIRMED. THE ASSESSEE IS AGGRIEVED AND IS IN FURT HER APPEAL BEFORE US. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 38 OF 43 107. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE NOT INCLINED TO INTERFERE IN THE MATTER. WE AGREE W ITH THE AUTHORITIES BELOW THAT SUCH AN INDEPENDENT THIRD PARTY QUOTATION, ON STANDALONE BA SIS AND WITHOUT ANY MATERIAL TO ESTABLISH ITS BONAFIDES AND WITHOUT ANYTHING TO SHOW THAT IT S CONTEMPORANEOUS NATURE AND SUFFICIENT PARITY WITH ACTUAL TRANSACTION, CANNOT BE ACCEPTED AS A VALID CUP INPUT. THE PLEA REGARDING BACK TO BACK TRANSACTION WAS ALSO NOT PROVED BEFORE US. IN VIEW OF THESE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE STAND OF THE AUTHORITIES BELOW AND DECLINE TO INTERFERE IN THE MATTER. 108. GROUND NO 2 IS THUS DISMISSED. 109. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED C.I.T. (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.1,03,75,360 WHICH ACTUALLY CRYSTALLIZED DURING THE PRESENT ASSE SSMENT YEAR. 110. THIS ISSUE HAS ALREADY BEEN DEALT WITH BY US W HILE ADJUDICATING GROUND NO. 2 OF ASSESSEES APPEAL FOR AY 2009-10. THE MATERIAL FAC TS AND CIRCUMSTANCES OF THIS YEAR ARE SIMILAR AND LEARNED REPRESENTATIVES HAVE AGREED THA T WHATEVER WE DECIDE FOR THE ASSESSMENT YEAR 2009-10 WILL APPLY MUTATIS MUTANDIS FOR THIS A SSESSMENT YEAR AS WELL. WE, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, UPHOLD THE GRIEVAN CE OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANCE WITH RESPECT TO PRIOR PERIOD EXPENSES. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 111. GROUND NO. 3 IS THUS ALLOWED. 112. IN GROUND NO. 4, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED C.I.T. (APPEALS) ERRED IN UPHOLDING DISALLOWANCE OF ADMINISTRATIVE E XPENDITURE OF RS.7,08,00,000 MADE BY THE ASSESSING OFFICER U/S.14A OF THE I.T. A CT BY APPLYING RULE 8D(2)(III) OF THE I.T. RULES 113. LEARNED REPRESENTATIVES SUBMIT THAT AN IDENTIC AL ISSUE HAS COME UP FOR ADJUDICATION BEFORE US FOR THE ASSESSMENT 2008-09, AND WHATEVER WE DECIDE IN THAT ASSESSMENT YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. 114. WE FIND THAT, WHILE DEALING WITH IDENTICAL GRI EVANCE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09, AND FOR THE REASONS SET OUT EARLIER I N THIS ORDER VIDE PARAGRAPH NO.4, WE HAVE UPHELD THE PLEA OF THE ASSESSEE TO THIS EXTENT TO M ODIFY THE ORDERS OF THE AUTHORITIES BELOW BY DIRECTING THE ASSESSING OFFICER TO COMPUTE THE 0.5% OF THE INVESTMENTS YIELDING TAX EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN. ACCORDINGLY, THIS G ROUND IS PARTLY ALLOWED. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 39 OF 43 115. GROUND NO. 4 IS PARTLY ALLOWED. 116. IN GROUND NO. 5, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED C.I.T. (APPEALS) ERRED IN SUSTAINING DISALLOWANCE OF BUSINESS LOSS I N RESPECT OF BALANCES OF RS.2,52,07,995 BEING ADVANCES FOR BUSINESS PURPOSES TO SUPPLIERS, WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE, IN SPITE OF THE FACT THAT SUCH WRITING OFF WAS IN THE NATURE OF LEGITIMATE BUSINESS LOSS ALLOW ABLE U/S.28 OF THE I.T. ACT. 117. THIS CLAIM OF DEDUCTION OF RS 2,52,07,995 IN R ESPECT OF WRITING OFF OF THREE AMOUNTS WRITTEN OFF- NAMELY AANGI AGENCIES FOR RS 1,21,65,9 21, CUSTOM DEPARTMENT DEPOSIT OF RS 1,27,86,555 AND NATIONAL BULK HANDLING CO FOR RS 2, 53,520. THE ASSESSING OFFICER DECLINED THE CLAIM OF BUSINESS LOSS ON THE GROUND THAT SOMET HING FOR WHICH A SPECIFIC PROVISION FOR BAD DEBTS IS AVAILABLE, GENERAL PROVISIONS OF BUSINESS LOSS COULD NOT BE INVOKED. IT WAS ALSO NOTED THAT THESE AMOUNTS WERE NOT ADMISSIBLE AS BAD DEBTS . WHEN MATTER WAS CARRIED IN APPEAL BEFORE THE CIT(A) AND IT WAS POINTED OUT THAT THE C REDIT ENTRY FOR REFUND CLAIM FOR CUSTOMS DEPOSIT WAS ALREADY MADE IN THE YEAR OF CLAIM, THIS PLEA WAS ALSO RATHER SUMMARILY REJECTED. THE CLAIM OF THE ASSESSEE THAT THESE AMOUNTS WERE A DVANCED IN THE COURSE OF BUSINESS WAS ALSO REJECTED. THE FINDINGS OF THE ASSESSING OFFICE R WERE THUS RATHER SUMMARILY AND CASUALLY DISCUSSED BY THE CIT(A). THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 118. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 119. WE FIND THAT AS LONG AS A LOSS IS INCURRED IN THE COURSE OF A BUSINESS, AND IN LEGITIMATE FURTHERANCE OF ITS BONAFIDE INTERESTS, THE LOSS IS DEDUCTIBLE IN COMPUTATION OF BUSINESS INCOME. WHAT, THEREFORE, NEEDS TO BE EXAMINED IS WHETHER OR NOT THESE ADVANCES WERE MADE IN THE COURSE OF THE BUSINESS AND WHETHER THESE ADVANCES H AVE ACTUALLY BECOME BAD. IF THE ANSWER TO BOTH THESE QUESTIONS ARE IN POSITIVE, THERE CANNOT NORMALLY BE A GOOD REASON TO REJECT THE CLAIM. WE, THEREFORE, DEEM IT FIT AND PROPER TO REM IT THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE MATTER AFRES H BY WAY OF A SPEAKING ORDER IN ACCORDANCE, IN THE LIGHT OF THE ABOVE OBSERVATIONS AND AFTER GI VING YET ANOTHER OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER ACCORDINGLY. 120. GROUND NO. 5 IS THUS ALLOWED FOR STATISTICAL P URPOSES IN THE TERMS INDICATED ABOVE. 121. IN GROUND NO. 6, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCES: 6. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN SUSTAINING DISALLOWANCE OF DEDUC TION OF A SUM OF RS.2,97,00,000 BEING 'MARK TO MARKET' LOSSES IN RES PECT OF APPELLANT-COMPANY'S FOREIGN CURRENCY DERIVATIVE CONTRACTS FOR HEDGING, WHICH WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. (B) WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN REJECTI NG THE ALTERNATIVE PLEA OF THE ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 40 OF 43 APPELLANT-COMPANY TO RESTRICT THE AFORESAID DISALLO WANCE BY SETTING OFF THE SUM OF RS.82,02,615, BEING THE PRECEDING YEAR'S PROVISION FOR SIMILAR LOSSES DISALLOWED BY THE ASSESSING OFFICER AND REVERSED BY THE APPELL ANT-COMPANY IN THE BOOKS OF ACCOUNT DURING THE PREVIOUS YEAR RELEVANT TO THE PR ESENT ASSESSMENT YEAR. 122 LEARNED REPRESENTATIVES SUBMIT THAT AN IDENTICA L ISSUE HAS COME UP FOR ADJUDICATION BEFORE US IN THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR, I.E., 2008-09, AND WHATEVER WE DECIDE IN THAT ASSESSMENT YEAR WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. 123. WE FIND THAT, WHILE DEALING WITH IDENTICAL GRI EVANCE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09, AND FOR THE REASONS SET OUT EARLIER I N THIS ORDER VIDE PARAGRAPH NOS.12-15, WE HAVE UPHELD THE PLEA OF THE ASSESSEE. WE SEE NO REA SONS TO TAKE ANY OTHER VIEW OF THE MATTER FOR THIS ASSESSMENT YEAR AS WELL. RESPECTFULLY FOLL OWING THE VIEW SO TAKEN, WE UPHOLD THE PLEA OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANC E. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 124. GROUND NO.6 IS THUS ALLOWED. 125. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 126. WE NOW TAKE UP APPEAL OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2010-11. 127. GROUND NO. 1 IS ALREADY DEALT WITH, IN THE COU RSE OF DEALING WITH THE APPEAL FILED BY THE ASSESSEE EARLIER IN THIS ORDER, AND WE NEED NOT REPEAT OUR FINDINGS THEREON. SUFFICE TO SAY, FOR THE REASONS SET OUT EARLIER, THIS GROUND IS ALS O DISMISSED. 128.. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RA ISED THE FOLLOWING GRIEVANCE: (2) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN PARTLY DELETING THE ADDITION MADE U/S 14A OF THE ACT. 129. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SQUARELY COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO-ORDINATE BENCH DECISION DATED 1 ST JANUARY 2016 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08. A COPY OF THE SAID DECISION WAS PLACED BEFORE US AS WELL. 130. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF TH E MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. IN ANY CASE, THERE IS NO DISPUTE THAT THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE WERE FAR MORE THAN THE FUNDS INVESTED IN S ECURITIES YIELDING TAX EXEMPT INCOME. ON THESE FACTS, IN THE LIGHT OF THE BINDING JUDICIAL P RECEDENTS, ONE HAS TO PROCEED ON THE BASIS THAT SUCH INTEREST FREE FUNDS IN MAKING THESE INVESTMENT S, AND NO PART OF INTEREST CAN THUS BE DISALLOWED UNDER SECTION 14A READ WITH RULE 8D. RES PECTFULLY FOLLOWING THE SAME, WE CONFIRM THE RELIEF GRANTED BY THE CIT(A) AND DECLIN E TO INTERFERE IN THE MATTER. 131. IN GROUND NO. 3, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 41 OF 43 (3) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.6,54,333/- IN RESPECT OF OFFICE PREMISES. 132. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS COVERED BY A DECISION OF THIS TRIBUNAL, IN ASSESSEES OWN CASE FOR THE ASSESSEE F OR THE ASSESSMENT YEAR 2007-08. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE FIN DINGS OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 133. GROUND NO 3 IS THUS DISMISSED. 134. IN GROUND NO. 4, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: (4) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE U/S 80IA IN RESPECT OF OPERATING INCOME OF WEIGHMENT CH ARGES AND PORT ENTRY FOR RS.1,41,00,000/-. 135. SO FAR AS THIS GROUND IS CONCERNED, WE FIND TH AT AN IDENTICAL ISSUE HAS COME UP FOR ADJUDICATION BEFORE US FOR THE ASSESSMENT YEAR 2008 -09, WHEREIN WE HAVE UPHELD THE STAND OF THE CIT(A). WE SEE NO REASONS TO TAKE ANY OTHER VIE W OF THE MATTER THAN THE VIEW SO TAKEN BY US. 136. GROUND NO.4 IS THUS DISMISSED. 137. IN GROUND NO. 5, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: (5) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE OF DEPRECIATION ON VEHICLE FOR RS 39,64,672. 138. ON A PERUSAL OF THE IMPUGNED ORDER PASSED BY T HE CIT(A), WE FIND THAT THE CIT(A) HAS SIMPLY FOLLOWED THE DECISION DATED 22 ND MARCH 2013 PASSED BY A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VOLTEMP TRANSFORMERS LIMITE D (ITA NO. 1676/AHD/12) AND EXTENSIVELY REPRODUCED FROM THE SAME. NEITHER THE L EARNED DEPARTMENTAL REPRESENTATIVE HAS DEMONSTRATED ANY DISTINGUISHING FEATURES IN THE SAI D CASE VIS--VIS THE CASE BEFORE US , BUT HAS VEHEMENTLY RELIED UPON THE STAND OF THE ASSESSING O FFICER. WE SEE NO REASONS TO TAKE A DIFFERENT VIEW OF THE MATTER IN THIS CASE AND MUST, THEREFORE, FOLLOW THE COORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE ACT ION OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 139. GROUND NO. 5 IS THUS DISMISSED. 140. IN GROUND NO. 6, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: (6) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE OF DEPRECIATION ON OFFICE EQUIPMENT AFTER TREATING THE SAME AS FURNITURE AND FITTINGS FOR RS 13,84,895. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 42 OF 43 141. SO FAR AS THIS GRIEVANCE IS CONCERNED, WE FIND THAT THE ASSESSEE HAD GRANTED DEPRECIATION ON OFFICE EQUIPMENT AS FURNITURE AND F ITTINGS, AND THUS DECLINING THE CLAIM OF THE ASSESSEE FOR 15% DEPRECIATION. IN APPEAL, IT WAS PO INTED OUT BY THE ASSESSEE THAT THE EQUIPMENT WERE IN THE NATURE OF ELECTRIC FAN, ELECT RIC MACHINE, LCD, TV, PROJECTOR, WATER PURIFIERS ETC WHICH MUST BE INCLUDED IN THE DEFINIT ION OF PLANT. THE JUDICIAL PRECEDENTS IN SUPPORT OF THIS PROPOSITION WERE ALSO CITED. IT WAS IN THIS BACKDROP, AND FOLLOWING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS PARK DAVIS INDIA LTD (214 ITR 587), LEARNED CIT(A) HELD THE OFFICE EQUIPMENT TO BE ELIGIBLE FOR 15% DEPRECIATION. ACCORDINGLY, DEPRECIATION DISALLOWANCE OF TS 13,84, 895 WAS DELETED. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 142. HAVING HEARD THE RIVAL CONTENTIONS, AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A DECISION OF THE COORDINATE BENCH IN THE CASE OF CERA SANITARYWARE LTD VS DCIT [42 ITR (TRIB) 334 (AHD)]. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE CONCLUSIONS ARRI VED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 143. GROUND NO. 6 IS THUS DISMISSED. 144. IN GROUND NO. 7, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: (7) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPRECIATION ON UPS FOR RS.8,14,103/-. 145. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY HONBLE DELHI HIGH COURTS JUDGMENT IN THE CASE OF CIT VS BSES YAMUNA POWER LTD (358 ITR 47), EVEN AS LEARNED DEPARTMENTA L REPRESENTATIVE VEHEMENTLY RELIED UPON THE STAND OF THE ASSESSING OFFICER. THERE IS N ON CONTRARY JUDICIAL PRECEDENT POINTED OUT TO US. IN THIS VIEW OF THE MATTER, AND RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HONBLE DELHI HIGH COURT IN THE CASE OF BSES YAMUNA POWER ( SUPRA), WE CONFIRM THE ORDER OF THE CIT(A) ON THIS POINT AS WELL, AND DECLINE TO INTERF ERE IN THE MATTER. 146. GROUND NO. 7 IS THUS DISMISSED. 147. IN GROUND NO. 8, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: (8)THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE OF RS.2,78,404/- BEING 10% OF AIRCRAFT HIRE CHARGES FOR RS.27,84,038/-. 148. AS FAR AS THIS DISALLOWANCE IS CONCERNED, WE FIND THAT THE IMPUGNED DISALLOWANCE WAS MADE ON PURELY ADHOC BASIS @ 10% ON THE PLEA THAT P ERSONAL USE OF HIRED AIRCRAFT COULD NOT BE RULED OUT. WHEN THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT(A), HE DELETED THE DISALLOWANCE, BY FOLLOWING HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF SAYAJI IRON & ENGG CO LTD VS CIT (253 ITR 749), AND HELD THAT NO DISALLOWANCE COULD BE MADE IN THE HANDS OF THE CORPORATE ASSESSEE FOR PERSONAL USE BY THE DIRECTORS. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. ITA NOS.: 1840/AHD/12, 3321/AHD/14 AND 2305/AHD/15 AND 1918/AHD/12,3480/AHD/ 14 AND 2531/AHD/15 ASSESSMENT YEARS: 2008-09, 2009-10 AND 2010-11 PAGE 43 OF 43 149. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT, IN VIEW OF HONBLE JURISDICTIONAL HIGH COURT S JUDGMENT IN THE CASE OF SAYAJI ENGG (SUPRA), NO DISALLOWANCE CAN BE MADE IN THE HANDS O F A CORPORATE ENTITY FOR PERSONAL USE OF CARS, AND, BY THE SAME LOGIC, OF THE AIRCRAFTS AS W ELL, BY THE DIRECTORS. THE CIT(A) WAS THUS INDEED QUITE JUSTIFIED IN DELETING THE IMPUGNED DIS ALLOWANCE. WE UPHOLD THE ACTION OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER ON TH IS COUNT AS WELL. 150. GROUND NO. 8 IS DISMISSED. 151. IN THE RESULT, THE APPEAL OF THE ASSESSING OFF ICER FOR THE ASSESSMENT YEAR 2010-11 IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 12 TH DAY OF FEBRUARY, 2019. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT ) AHMEDABAD, DATED THE 12 TH DAY OF FEBRUARY, 2019. COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD